Incident: The company announced its 2018 annual report on August 7, 2018. 2018H1 achieved revenue of 593 million yuan (+25.2%) and net profit of 29 million yuan (+238.2%) to mother. Comment: The company's performance slightly exceeded expectations, and on-hand orders provided an impetus for future growth. 1) Performance slightly exceeded expectations: 2018H1 achieved revenue of 593 million yuan (+25.2%) and net profit to mother of 0.29 million yuan (+238.2%), slightly exceeding expectations; 2) Gross margin declined slightly: 2018H1 company's gross margin/period expense ratio/net profit margin to mother were 30.20%/32.99%/4.83%, respectively, compared to 2017 -4.59/+2.10/+1.13pct. The decline in the company's gross margin was mainly due to a 70% year-on-year increase of more than 70% in new orders for subway and general rail air conditioning products with lower gross margins , due to loss in SMA RT performance; 3) The order situation was good: in the first half of the year, the company received 952 million yuan (+41.1%) of new orders, and currently the company has 2,248 million orders (+36.4%). Ground electrical equipment: Orders for ground power supplies have increased dramatically, and door systems and braking energy utilization systems are being actively promoted. In 2018, H1's rail transit ground electrical equipment solution business achieved revenue of 190 million yuan (+2.2%), with a gross margin of 39.91%, compared with -0.27pct at the end of 2017. 1) Ground power solutions. The company has become a leading enterprise with leading technical level and market share in this field. In the first half of 2018, the company's new ground power orders increased by 48.12% year on year; 2) Platform door system solutions (shielded doors/safety doors) have been successfully applied in many urban rail transit and intercity railway projects. In the first half of the year, the company completed the inspection of the shielded door system for Guiyang Metro Line 1. It won the bid for the shielded door system for the Shenzhen Airport Line APM project, and the business order for the platform door system is stable; 3) the regenerative braking energy utilization system solution. The company has two systems with mature technology, a supercapacitor energy storage system and an inverter feedback system. The related technology has reached the international advanced level. Vehicle electrical equipment: Orders for vehicle air conditioning systems have increased by more than 70%, and vehicle auxiliary power supplies have achieved full coverage of railway vehicles. 2018H1's vehicle electrical equipment solutions achieved revenue of 298 million yuan (+8.7%), with a gross margin of 21.76%, compared with -3.52 pct at the end of 2017. 1) Vehicle air conditioning system solutions have covered all fields of high-speed rail, subway, and general railways. In the first half of 2018, the company received more than 70% more new orders for vehicle air conditioning products compared to the same period last year, and successfully won more than 170 million yuan in overseas subway projects. Guangzhou Dinghan (formerly CRRC Air Conditioning) contributed 194 million yuan in revenue and net profit of 2.84 million yuan. The decline in net profit was mainly due to the relatively large share of subway air conditioning products with low gross margin during the reporting period; 2) Vehicle auxiliary power system solutions. In 2017, the company obtained sales qualification for high-speed rail auxiliary power supplies, which also covered all fields of high-speed rail, subway, and general rail. SMA RT subway vehicle auxiliary power supply technology is in a leading position in the world. Relying on SMA RT's advanced technology, the company's power supply projects for various types of vehicles are progressing smoothly. During the reporting period, SMA RT had revenue of 76.3 million yuan and net profit of 12.12 million yuan; 3) Vehicle special cable solutions were mainly used in high-speed rail/EMUs and urban rail transit vehicles. Wuhu Dinghan (formerly Haixing Cable) products can meet the needs of all types of railway vehicles. The 2018H1 achieved revenue of 52 million yuan and net profit of 8.45 million yuan. Informatization and safety testing: Leading in informatization and safety testing technology, Qihui Electronics has become a new profit point. 2018H1's informatization and security testing achieved revenue of 101 million yuan (+784.9%), with a gross margin of 34.69%, compared with the end of 2017 -16.75pct. 1) Smart station project. The subsidiary Qihui Electronics is the only domestic rail transit technology support company with independent research and development capabilities. There are few direct competitors in the fields of railway-related software development, intelligent analysis, and video surveillance. The smart station project launched by Qihui Electronics last year was implemented at more than 5 stations across the country in the first half of 2018. Qihui Electronics achieved revenue of 98.49 million yuan and net profit of 11.37 million yuan; 2) Information technology solutions are used in railway freight, passenger transport, locomotives and railway public security, which can achieve railway safety, accurate, efficient and scientific information management; 3) Safety inspection solutions. In this field, the company has developed many mature systems such as contact network inspection systems, rail inspection systems, limit inspection systems, and electric bus online bow inspection systems. After-sales maintenance and operation and maintenance solutions: The market share is expected to continue to increase after rail transit, and the operation and maintenance business will become a new growth point. 2018H1 achieved service sales of 68.05 million yuan (+45.6%). The company has more than 200 professional service personnel across the country, covering various railway stations, subway companies and vehicle maintenance bases in China. Currently, China's railway operation and maintenance market accounts for about 30%, far below the average of 60% in developed countries. As China's rail transit market matures, railway investment capital will be skewed towards operation and maintenance. The company has a significant first-mover advantage in the field of railway operation and maintenance, and has great potential for development. Implement the fourth equity incentive to increase the company's overall enthusiasm. The company implemented the fourth equity incentive in December 2017, adjusted the exercise price to 12.32 yuan in August 2018, and awarded the incentive to 298 people. Equity incentives help stabilize the company's personnel structure, unify the interests of shareholders and employees, increase employee motivation, and contribute to the long-term development of the company. Valuation and Ratings: Maintain a “buy” rating. With the gradual advancement of the company's “ground to vehicle, incremental to inventory, and internationalization” development strategy, the company's solutions have covered specialized fields such as rail transit vehicles, electricity, construction, power supply, and operation, and has become a global rail transit comprehensive solution provider. We lowered our profit forecast. The original forecast was 261/315 million yuan for 2018/2019, and the current forecast is 1.85/2.44/306 million yuan for 2018/2019/2020, respectively, corresponding to EPS 0.33/0.44/0.55 yuan, corresponding to PE 25/19/15 times, maintaining the “buy” rating.