Incidents: In the first half of 2017, Xinzhu Co., Ltd. had revenue of 371 million yuan, a year-on-year decrease of 43.3%; net profit loss of 709.36 million yuan, a year-on-year decrease of 70%; net profit loss of net profit after deduction of 77.812 million yuan, a year-on-year decrease of 9.46%. The net profit loss for the first three quarters of 2017 is forecast to reach 8700 million yuan to 89.59 million yuan. The company's bridge functional components contributed steadily over a long period of time. Rail transport+supercapacitors ran fast on both legs, and supercapacitors increased dramatically. The rail transit business was mainly confirmed in the second half of the year, and short-term profits were not fully released. The company has plenty of orders in hand and is concentrating on long-term development. It is covered for the first time, and there are no ratings yet. Comment: 1. Affected by delays in rail transit vehicle delivery, revenue fell short of expectations, 17H1 revenue fell 43.29% year-on-year, mainly due to delays in rail transit vehicle delivery. At the same time, there was revenue from construction machinery of about 80 million in the same period last year (the business has been divested), but the supercapacitor business increased 2.5 times, while overseas business revenue doubled. 1) Due to delays in rail transit vehicle delivery, rail transit business revenue fell short of expectations. The rail transit business revenue for the first half of the year was only 107.94 million yuan, a year-on-year decrease of 95.7%. Mainly, ongoing projects were confirmed in the second half of the year, so there was a clear short-term year-on-year decline. 2) The supercapacitor business performed well, with a year-on-year increase of more than 250%. The company acquired Shanghai Aowei Technology, a leading supercapacitor company, in 2015. The technology is in a leading position in the industry, can achieve import substitution, and obtained the first ECE R100 certificate and ECE R10 certificate in China. Supercapacitor's revenue for the first half of the year was 598.12 million yuan, up 254.8% year on year. Currently, there are many projects in progress, and growth will continue at a rapid pace in the second half of the year. It is expected that the revenue target of 150 million dollars will be achieved throughout the year, double the previous year. 3) Bridge functional components are developing steadily. Revenue for the first half of the year was 276 million yuan, down 1.35% from the previous year, which is basically in line with expectations. The company continues to expand the bridge maintenance market, focusing on developing maintenance and replacement services for bridge inspection vehicles, oversized bridge supports and expansion joint devices. The product structure will continue to be optimized in the future. 4) Actively expand overseas business, and the development momentum should not be underestimated. Overseas business revenue for the first half of the year was 13.488 million yuan, an increase of 525.5% over the previous year, and gross margin was as high as 54%, mainly benefiting from export growth in the supercapacitor business. 2. Product structure optimization increases gross profit margin. The total amount of the three fees is still large. 2017H1's comprehensive gross margin was 34.28%, up 16.1% year on year. The gross margin of the rail transit business was 26.82%, an increase of 22.9 percentage points over the previous year. The increase in gross profit was mainly due to the fact that the scale effect in the first half of last year was not reflected. The products delivered at the same time were mainly car bodies, while rail systems were mainly delivered in the first half of this year, so the gross margin for bridge functional components was 32.3%, up 3.76 percentage points from the previous year. The increase in gross profit was mainly due to the increase in new products, bridge inspection vehicles and protective nets, which optimized the product structure; the supercapacitor business margin was 42%, a decrease of 5 percentage points over the previous year, mainly due to the large number of rail connections in the first half of the year Product, the gross margin for the whole year will return to normal levels. Expenses were high during the first half of the year, and net profit was not able to reverse losses. Net profit of the parent company fell 70% year on year. Last year, due to the divestment of construction machinery subsidiaries, net profit loss after deduction of the company fell by only 9.46% year on year. The total amount of three fees in the first half of the year exceeded 200 million yuan, of which sales expenses were 357.44 million yuan, a year-on-year decrease of 9.18%; management expenses of 17H1 were 113 million yuan, a year-on-year decrease of 1.17 percentage points, of which R&D expenses were 34.791 million yuan, an increase of 50.33% over the previous year, mainly due to the increase in overall R&D expenditure for 100% low-floor vehicles; and financial expenses were 51.394 million yuan, a decrease of 5.91% year-on-year. Since the company is currently in a period of transformation, the new business requires a large amount of investment in the expansion process, making it difficult for the company's expenses to be significantly reduced in the short term, but as revenue increases, the scale effect will be prominent. 3. The layout of the entire urban rail transit industry chain benefits Chengdu Rail Transit Rapid Development Company has completed the layout of modern trams, new track systems, and subway vehicles. Extending upstream and downstream of the urban rail transit industry chain through endogenous and external partnerships and acquisitions, it has “integrated investment, construction and operation” service capabilities, and has industrialized the Xinjin Hyundai streetcar project. Based on an investment of 100 million yuan, the overall value of the vehicle is about 20 million, and the track system is about 15 million. The company currently has plenty of orders in hand, including the Chengdu Rong Line 2 rail system order of 170 million yuan, Chengdu Metro Line 5 vehicle orders with a total price of 3.8 billion yuan, etc. The second half of the year is the centralized delivery time for vehicles. According to the normal schedule, it should be confirmed that revenue is over 1 billion yuan this year, but the time of receipt of goods by owners will affect revenue confirmation. Leading rail transit in Sichuan, its location advantages directly benefit from the rapid development of rail transit in Chengdu. Currently, Chengdu Rail Transit has put into operation 4 lines with a total operating mileage of 108 kilometers; 13 rail transit lines under construction, with a total mileage of 459 kilometers; and 46 lines of the long-term planned rail transit network, with a total length of 2,450 kilometers. As a leading rail transit enterprise in Sichuan Province, Xinzhu has directly benefited from the development of the rail transit industry in Chengdu and further spread to the southwest region. The planned mileage of streetcars in the four southwest provinces exceeds 700 kilometers, with a total investment of over 100 billion yuan. The future market space is broad, and future profits are promising in the long term. 4. Publish an equity incentive plan that binds the interests of core employees to the equity incentive plan to determine the size of future revenue. In August 2017, the company announced an equity incentive plan. It plans to grant 104.317 million shares to incentive recipients, accounting for 1.62% of the total share capital. Of these, the 166 incentive recipients were granted 8.386 million shares for the first time, accounting for 1.3% of the total share capital; 2,046 million shares were reserved, accounting for 0.32% of the total share capital. The grant price is 4.63 yuan per share. The unlocking conditions are that the operating income in 17-19 is not less than 1.6 billion, 2.7 billion, and 3.7 billion. Based on the operating income of 1.52 billion yuan in 2016, the growth rate in 17-19 is not less than 5.3%/77.6%/143.4%. Among the incentive targets, the general manager, deputy general manager, financial director, and board secretary received a total of 0.23%, and a total of 159 core managers and core technical (business) personnel received a total of 1.07%. The scope of restricted stock incentives is extensive and binds to the interests of core employees. Concerted efforts will be made to promote the rapid development of the company, and after the completion of equity incentives, the company's vitality will be enhanced. 5. Optimistic about the company's future development, the short-term profit failed to fully release the long-term stable contribution profit of the company's bridge functional components, which covered no ratings for the first time. Rail transport+supercapacitors ran fast on both legs. 1) The company has formed a full-industry chain layout integrating modern streetcars+new streetrails+subway cars+supercapacitors, and has completed initial investment in emerging businesses, opening up new growth space; 2) The company is the only company in China other than CRRC with urban rail transit business qualifications, independent R&D capabilities, production capacity and historical performance. The supercapacitor business has grown significantly in the first half of the year, but profit pressure is still high due to delays in delivery in the rail transit business sector. It is predicted that the net profit loss for the third quarter will be 8700 to 89.59 million yuan. With the centralized confirmation of the rail transit business in the second half of the year, it will be profitable throughout the year. The company benefits from regional advantages and the Chengdu City Plan, and also publishes equity incentive plans to bind core employee interests. We predict that the company's net profit for 17-18 will be 39 million and 140 million, respectively, and the corresponding PE in 2018 will be 36.8 times. There is no rating for the first time coverage yet. 6. Risk warning: Rail transit business revenue confirmation falls short of expectations