Kai Electric released an interim results report on August 25, stating that net profit attributable to owners of the parent company in the first half of 2016 was RMB 10.8428 million, down 69.74% from the same period of the previous year; revenue was 176 million yuan, down 12.55% from the same period last year. Delays in revenue recognition and increased expenses affected the company's short-term performance, and the long-term growth trend remained unchanged. Optimistic about the long-term development of the company and industry, the investment rating was raised to “Highly Recommended - A”. Delays in revenue recognition and increased expenses affected interim results. In the first half of 2016, due to delays in project confirmation, the company's revenue was 176 million yuan, a year-on-year decrease of 12.55%. The management fee ratio increased 7.86% compared to the same period last year. First, it included 7.73 million yuan in intermediary service fees arising from mergers and acquisitions, and second, R&D expenses increased 3.58 million yuan year-on-year. In addition, there was an increase of 7.52 million yuan in age-based reserves compared to the same period last year. This had a huge impact on the company's mid-term profit. Net profit to mother was 10.84 million yuan, down 69.74% from the same period last year. The execution of contracts is abundant, and the long-term growth trend has not changed. The company is currently executing a total of 800 million contracts (revenue of 420 million in 2015), and most of them have already entered the commissioning stage. The company's orders began to explode in Q2, 2015. According to the 1.5-2 year delivery cycle, the flashpoint for revenue confirmation will be in the first half of Q4-16 this year, and the long-term growth trend will not change. The subway business is the main engine of growth, and cross-regional expansion has shown results. With the increase in investment in urban rail transit, the industry will maintain a growth rate of more than 30% in the future. The company's subway projects currently account for about 70% of the executed contracts. Looking at the execution area of the project, it has expanded from the original Beijing-Tianjin region to various regions such as Shenzhen, Hefei, Chengdu, Nanning, Changsha, Dongguan, Guangzhou, Nanchang, Wuhan, Ningbo, and Xiamen. Acquire German Baofu, the global rail transit electric benchmark, to open up 10 billion rail contact network market space. In February 2016, the company announced the acquisition of RPS (German Prosperity) and BB Singal (about 0.1 times PS, 0.45 times PB) for 13.25 million euros. The plan is to use Baofu's technology and industry experience to re-enter the Chinese rail communication network market (domestic demand of 20 to 30 billion dollars per year). Delivery will be completed in the near future, and the three-quarter report will be consolidated. Upgraded to “Highly Recommended - A” investment rating. We believe that short-term performance fluctuations will not affect the growth trend of the company and the rail transit industry. Excluding mergers and acquisitions, it is estimated that EPS will be 0.33 yuan in '16 and 0.43 yuan for '17. PE and PB will be 54 and 5.6 respectively, which will be upgraded to a “Highly Recommended - A” investment rating; Risk Warning: Railway investment falls short of expectations, and merger and acquisition integration falls short of expectations.