Description of the incident: Zhongneng Electric released its 2013 quarterly report: in January-September, the company achieved operating income of 289 million yuan, a year-on-year increase of 35.9%; achieved operating profit of 39.86 million, an increase of 16.07%; realized attributable net profit of 33.3 million yuan, an increase of 7.06% over the previous year; and basic earnings per share was 0.21 yuan. Looking at a single quarter, the company achieved operating income of 133 million yuan in July-September, up 64.58% year on year; realized operating profit of 16.35 million, up 29.68% year on year; realized net profit of 11.51 million yuan, up 7.91% year on year; basic earnings per share were 0.07 yuan. Incident review The company's revenue growth rate in the third quarter increased significantly compared to the first half of the year, mainly due to the recovery in the railway market, which saw a sharp increase in bid volume in the first half of the year. At present, equipment such as railway box transformers is gradually entering the production and delivery period, driving rapid growth in business revenue. In addition, the company's high and low voltage complete equipment has maintained good sales within the power grid. The company's operating profit growth rate is lower than the revenue growth rate, mainly because the gross margin of railways and complete equipment is lower than that of traditional ring network cabinets, cables, etc., and the overall gross margin has declined structurally. The company's gross margin for the first three quarters was 37.37%, down 7.96 percentage points from the previous year. The company's railway business is mainly handled by the subsidiary Wuchang Electronic Control. In the railway market, only a few companies, such as Wuchang Electronic Control, Teruide, and Xinlong Electric, can provide intelligent prefabricated substations with high reliability, and the market competition pattern is relatively stable. Affected by the train accident, the railway “four electricity” tenders basically stopped in the first three quarters of '12. However, since the end of last year, there has been a marked rebound in tenders for equipment such as box changers, and the company's new orders have increased markedly. As of the third quarter, Wuchang Electronic Control successfully turned a loss into a profit. In addition to railways, the company also successfully broke through the subway market in the first half of the year and won the bid for the second phase of the Wuhan Metro Line 4 project. Production has now begun, and delivery has not yet been made. Considering that the parent company's shareholding ratio in Wuchang Electronic Control is 51%, the profit and loss of the company's minority shareholders during the reporting period increased significantly compared to the same period last year. Affected by this, the net profit growth rate attributable to China Energy Electric was significantly lower than the growth rate of operating profit. The company's short-term growth depends on the recovery of the railway market, but long-term growth requires the continuous introduction of new products into the market. Judging from the disclosed R&D progress, the company is currently producing a number of products in small batches after type testing, such as power quality products, smart cable accessories, etc. The above products all have high added output value, and it is expected that they will become a new profit growth point for the company in the future. Give it a “Cautious Recommendation” rating. The company implemented an equity incentive plan in 2012. The conditions for unlocking/exercising the second phase were: the company's net profit growth rate in 2013 was not less than 60% compared to 2011; the weighted average return on net assets was not less than 9%. Judging from the results of the first three quarters, it is very difficult for the company to meet the conditions for exercising its rights. We expect the company's 13-year EPS to be 0.31 yuan and 0.38 yuan respectively, with corresponding price-earnings ratios of 27 times and 23 times, giving it a “careful recommendation” rating.