Key investment points: There is broad scope for urban rail development, and investment in railway electrification remains high. During the “12th Five-Year Plan” period, China's urban rail transit traffic mileage showed a rapid growth trend. By the end of 2015, it had exceeded 3,600 kilometers. In the future, China's declaration threshold for urban rail construction is expected to be lowered, while approval authority will be decentralized, and urban rail transit is expected to usher in rapid development during the “13th Five-Year Plan” period. However, in terms of railway construction, large-scale development of electrified railways is in line with China's basic national conditions. Compared with developed countries, there is still a big gap in railway development in China, so we expect investment in railway electrification to remain high. The leading rail transit electrical equipment leader set sail in the wind. Under the impetus of urban rail and electrified railway construction, Kai Electric will follow the trend and develop rapidly. Since its establishment, the company has been committed to the application and innovation of automation technology in the field of rail transit, and has become one of the formulators of technical standards for relevant domestic industries. The company's product system is complete, technology and R&D advantages are outstanding, and it has industry pioneering and brand advantages. The products are widely used in key national projects such as the Beijing-Shanghai High Speed Railway, the Daqin Heavy-Duty Railway, the Qinghai-Tibet Line Xige Plateau Electrified Railway, and many subway projects across the country. Epitaxial expansion has entered the new field of rail transit electrical equipment. The company announced a major asset purchase plan in February this year, and will acquire shares in the three companies in cash. Among them, RPS inherits the core competitive advantage and brand influence of German Baofu in the contact network business and power supply system business, and has a full range of German railway contact network systems and AC/DC power supply-related technologies and products; Tianjin Baofu specializes in the production of DC switch cabinet equipment for urban rail transit; and BB Signal mainly engages in trackside signal equipment, trackside detectors, etc. In the future, the company will accelerate the comprehensive interface between German RPS products and technology, and launch the localization of the two product lines of the joint venture Tianjin Alpha UnionPay to actively expand the new product line. Give a “Recommended” rating. We expect the company to achieve revenue of 530, 6.80, and 866 million yuan from 2016 to 2018, and net profit of 1.01, 1.22, and 150 million yuan, corresponding to EPS of 0.37, 0.45, and 0.55 yuan, respectively, and 49, 41, and 33 times the current stock price PE, respectively. Considering that rail transit construction will accelerate during the “13th Five-Year Plan” period, the core competitiveness of the company's main business is outstanding, and there will be steady growth, we are optimistic about the company's medium- to long-term development prospects and give it a “recommended” rating. Risk warning 1. Risk of rail transit investment falling short of expectations; 2. Risk of major asset restructuring; 3. Market competition risk