Invest in AFC terminal equipment manufacturers that specialize in logic and master core modules to achieve high product margin. The company focuses on the production of automatic ticketing system (AFC) terminal equipment, which is mainly used in subways, trams, BRT and other fields. The gross margin of the company's main business is high, with an average of around 50% in recent years; product core modules are independently developed and produced, covering high-margin sectors of the industrial chain. The new product, the flat gate, is safe and efficient, and has been approved by Shentong Metro. It is expected that it will be used in the future to build new subway stations in Shanghai and to upgrade existing stations. The operating mileage of the 13th Five-Year Railway is expected to double, and the rapid growth of the industry provides demand support. At the end of 2015, the operating mileage of rail transit across the country was 3,618 kilometers. According to the current construction plan, it is expected to reach 8000 kilometers by 2020, achieving double growth. It is estimated that during the “13th Five-Year Plan” period, the annual investment in urban rail transit will remain at 300 to 350 billion yuan. The cumulative investment is expected to exceed 2 trillion yuan, corresponding to AFC terminal equipment demand of about 12 billion yuan. The product is highly recognized at home and abroad, achieving the only domestic export of AFC machines. The company has full contracts and currently has 700 million orders in hand, reflecting the market's high level of recognition of the company. The company is the only AFC machine exporter in China. Currently, overseas markets account for about 20% of revenue. The company has accumulated rich overseas business experience in Southeast Asia and South America, and is capable of continuing to expand its business fields to developed countries in Europe and North America in the future. Intelligent transportation is the main line, and the business field is broadened horizontally and vertically. On the one hand, the company is expanding the field of downstream system integration vertically. It recently signed a contract for the Songjiang streetcar project with a total price of 71 million yuan, which is expected to be the first to achieve new breakthroughs in the tram field. On the other hand, the company acquired 7% of Albus Network Technology's shares to enhance the company's data operation and maintenance capabilities; in August, an agreement was signed with the Yuxi Municipal Government and others to build smart cities and other projects, achieving new expansion in the field of intelligent transportation. Profit forecast We forecast that the company's main business revenue for 2016-2018 will be 2.43/3.18/415 million yuan, up 29.9%/30.9%/30.5%, respectively; net profit of 62/83/108 million yuan, up 47.0%/33.2%/30.1%, respectively; EPS is 0.45/0.60/0.78 yuan, corresponding to PE 77/58/45 times, respectively. Investment recommendations We believe that the company has plenty of orders, strong market competitiveness, peak rail transit mileage construction brings performance support, and expansion of the intelligent transportation landscape through expansion, and growth space is expected to continue to expand. For the first time, coverage gave the company a “buy” rating, with a target price of 58-62 yuan for the next 6-12 months. Investment in risk rail transit construction fell short of expectations; smart terminal equipment production line projects fell short of expectations.