Main points of investment

Items:

On September 22, the company announced the draft employee stock ownership plan and management measures for the first phase.

Peace viewpoint:

The employee stock ownership plan is expected to fall to the ground, and the interests of the individual and the company are more consistent: the company proposed a "timely launch of equity incentive plan" in the 2010 annual report, but it was never implemented; in July 2015, the company also planned an employee stock ownership plan. however, it was forced to terminate due to employees' difficulties in raising funds and poor market conditions during the stock market crash. If this plan is finally approved and implemented, it represents that the incentive mechanism of the company has been greatly improved and strengthened, and for the first time realize the further binding between the individual interests of employees and the overall interests of the company in the form of employee stock ownership plan. it is helpful to improve the cohesion of employees and the competitiveness of the company, and mobilize the enthusiasm of managers and employees.

The participants of this plan focus on the core personnel, and the scale is moderate: according to the draft employee stock ownership plan, the duration of the plan is 24 months, and the participants are the company's directors, supervisors, senior managers, the core business backbone of the company and subordinate subsidiaries, the total number of qualified participants is no more than 310, the maximum amount of funds raised is 75 million yuan, and the minimum subscription amount for individuals is 75000 yuan. Based on this calculation, the maximum number of participants can be up to about 30% of the total number of employees of the company, and the per capita subscription amount is about 240000 yuan, which is enough to produce a significant incentive effect; if combined with the company's closing price of 14.01 yuan on September 20, 2016, the upper limit of the company's shares held in this plan is 5.3533 million shares, accounting for 1.53% of the company's total share capital.

The implementation of the plan demonstrates the company's confidence in the development prospects and provides a strong support for the stock price: the draft plan reveals that the employee stock ownership plan will be directly funded by the participants, without adopting a hierarchical structure, and acquire and hold the underlying stock in the way permitted by laws and regulations such as secondary market purchase, with a lock-up period of 12 months. On the one hand, the program shows that the company's internal personnel have enough confidence in the development prospects; on the other hand, the incentives formed by the shareholding plan will help to improve the company's business performance. Given that the company's current share price is only equivalent to the initial level of the rally at the end of March 2015 and the year-on-year growth of net profit of more than 20% since 2015, we believe that in the near future, the company's share price is within a reasonable range compared with the target of the same industry and comparable market capitalization, and the employee stock ownership plan will strongly support it.

The company will continue to seek epitaxial growth opportunities: the company actively seeks epitaxial growth opportunities, and has planned three major asset restructuring in recent years, involving high-quality enterprises such as Anhui Radio and Television Group and softong Power, but all of them have been terminated. We judge that the company still has a strong desire to develop through mergers and acquisitions to create value added for shareholders and employees, and the introduction of the employee stock ownership plan will give the company a stronger incentive to seek extension growth opportunities.

The employee stock ownership plan is conducive to the company's business expansion and sustainable growth: at present, the company is in the stage of expansion and transformation-in the field of highway informatization, the company is actively integrating into national development strategies such as "Belt and Road Initiative" and "Yangtze River Economic Belt". At the same time, the operation and maintenance business of the stock road is taken as the focus of development. In the field of port shipping information, the company is expanding overseas in line with the national "Belt and Road Initiative" strategy, and focusing on African and Latin American markets. In terms of innovative business, the company is involved in the field of vehicle networking, is committed to developing V2X technology to realize vehicle-road coordination, and tries to expand the company's industrial chain layout in the field of transportation and port shipping with "Internet +" business. fully tap the potential value of traditional business, in order to achieve transformation and upgrading. The company launches the employee stock ownership plan at this point, which will provide strong institutional support for business expansion and transformation, enhance the enthusiasm and creativity of employees, and help to achieve sustained growth.

Profit forecast and investment advice: we maintain the previous profit forecast, the EPS of the company for 16 to 18 years is 0.24,0.29,0.36 yuan respectively, and the PE corresponding to the closing price on September 23 is 58.3,48,39.6 times respectively. As the employee stock ownership plan helps to maintain the stability of the company's senior executives and core backbone team, and realize the binding of personal interests with the company's interests, while forming a strong support to the company's stock price, it strengthens the motivation and probability for the company to continue to seek extension growth opportunities, we continue to be optimistic about the company's development prospects, and continue to maintain the "recommended" rating.

Risk hints: the scale of infrastructure investment in the transportation sector has shrunk, the growth rate of the incremental market has slowed down; competition in the industry has intensified, business expansion has been hindered; policies related to mergers and acquisitions have changed, and the company's extension growth path is limited.