Key investment event description Shentong Metro released its 2015 annual report. The company's operating income increased 4.0% year on year to 774 million, gross margin fell 5 percentage points year on year to 9.7% year on year, imputed net profit fell 34.4% year on year to 69 million yuan, and finally achieved an EPS of 0.14 yuan. The distribution plan is a dividend of 0.5 yuan (tax included) for every 10 shares. At the same time, the company released its 2016 quarterly report. Revenue increased 0.5% year on year to 180 million, gross margin decreased 1.6 percentage points year on year to 7.4%, and attributable net profit increased 34.5% year on year to 19 million yuan. The incident commented that the increase in investment returns is difficult to withstand the rise in rail transit costs. The company's revenue increased 4.0% year over year to 774 million dollars (mainly due to the expansion of the financial leasing business, rail transit business revenue decreased by 0.39% year on year), but the operating cost of Line 1 increased more rapidly to 7.63% (of which overhaul costs and operating costs increased by 20 million and 30 million, respectively), so the company's overall gross margin fell 5 percentage points to 9.7% year on year, achieving a decrease of 34 million in gross profit from the previous year. Although the company began to receive investment income from rail transit superfinance funds in 2015, and overall investment income increased by 16.6 million year-on-year, due to a rigid rise in rail transit costs, the final attributable net profit fell 34.4% year on year to 69 million yuan. Passenger traffic on Line 1 is growing at a slow pace, and overhaul expenses affect gross profit margins. In 2015, the company's core asset, the total passenger traffic volume of the Line 1 subway increased 0.3% year on year to 350 million passengers. With the continuous opening of new Shanghai Metro lines, passenger traffic on the main line fell 1.3% year on year, and passenger exchange traffic increased 2.3% year on year. At the same time, the increase in the share of passenger exchanges has also led to a decline in unit ticket prices. In the end, the 2015 settlement ticketing revenue for Line 1 fell 0.4% year on year. However, due to the rigidity of operating costs and a 29% year-on-year increase in overhaul expenses, the final gross margin of Line 1 fell nearly 7 percentage points year on year to 6.55%. The scale of the financial leasing business is in a period of rapid growth. In 2015, the company added 3 new projects to its financial leasing business, including the underground pipeline network after-sales leaseback project (transaction amount of 400 million yuan), shield financial leasing project (transaction amount of 166 million yuan), and hotel asset sale-sale leaseback project (transaction amount of 78 million yuan). The total financial leasing business scale was 644 million yuan (signed 644 million yuan, actual investment of 503 million yuan), with operating income of 46.2 million yuan, a sharp increase of 253% over the previous year. Judging from the company's operations in the first quarter, gross margin is still in a downward channel due to rising rail transit costs, and the increase in performance mainly comes from the investment income of supervised funds. Maintain an increase in holdings rating. The company's future prospects: 1) The injection or expansion of auxiliary industries, and the “Guangzhou Commerce” and property management rights that are still under the group, are probably the company's biggest focus in the future; 2) the increasing flow effect brought about by the opening of Disney in 2016; 3) the expected injection of other subway assets within the group. We expect the company's 2016-2018 EPS to be 0.16 yuan, 0.17 yuan, and 0.18 yuan respectively, maintaining the “increase in holdings” rating. Risk Alerts: Overhaul Costs Exceed Expectations, Unexpected Safety Incidents, Impact of New Line Replacement