Incidents: The company disclosed its 2016 semi-annual report. Revenue for the first half of the year was 123 million yuan, down 5% year on year; net profit was 1.46 million yuan, down 4% year on year; and comprehensive gross profit margin was 45.50%, down 1.82 percentage points year on year. The slow settlement of projects led to a slight decline in performance. The company has 317 orders in hand, with a contract value of 171 million yuan. Revenue from railway traffic safety monitoring system software products and related services in the first half of 2016 was 82.72 million yuan, accounting for 67% of total revenue. The main business was highly dependent on the scale of investment in railway infrastructure projects. With the implementation of the 13th Five-Year Plan and the gradual resumption of railway construction in the country, the continuously growing railway investment environment will have a positive impact on the company's performance. The railway informatization industry will benefit from investment in railway construction. According to the “13th Five-Year Plan” of China Railways, by 2020, the operating mileage of national railways will reach more than 120,000 kilometers, including more than 16,000 kilometers of passenger lines. The double line rate and electrification rate will reach more than 50% and 60% respectively. The railway industry still has a lot of room for market development. The importance of railway traffic safety monitoring in the railway transportation process is also becoming more and more apparent. The company is mainly engaged in the development and sales of railway integrated monitoring system platforms, railway communication monitoring systems, railway integrated video surveillance systems, railway disaster prevention and safety monitoring systems, and has established a leading edge in product fields such as railway communication monitoring systems, railway integrated video surveillance systems, and railway disaster prevention and safety monitoring systems. The expansion route of extension will continue, and new business is poised to launch. On May 23, the company's plan to acquire Yi Weixun by issuing shares and cash was rejected, but the company is optimistic about Yi Weixun's business model and market share, and will not easily abandon the acquisition. We believe that epitaxial expansion is the main line of the company's future development, and the company is expected to further expand its main business through epitalization in the railway information technology industry. Investment suggestions: Under the premise of ensuring the steady growth of railway traffic safety monitoring business, the company's development strategy is to further increase investment and mergers and acquisitions, enter the post-railway service business field, and provide reliable support for performance growth. The company's net profit growth in 2016-2018 is expected to be 13%, 16%, and 18%, respectively, and EPS is 0.24, 0.28, and 0.33 yuan, respectively. For the first time, coverage was given an “increase in holdings” rating. Risk warning: The pace of extension is progressing slower than expected.