Investment points: The railway operation safety inspection system business is the company's main source of revenue and profit. Kangtuo Infrared achieved operating income of 295 million yuan in 2017, an increase of 3.98% over the previous year, and net profit of the mother's net profit of 72 million yuan, an increase of 6.33% over the previous year. The consolidated gross margin was 41.19%. Looking at the revenue structure, the railway operation safety inspection system business achieved operating income of 237 million yuan, accounting for 80% of the company's total operating income. The gross margin was 46.83%, higher than the company's overall gross profit margin; the intelligent warehousing system business achieved revenue of 57 million yuan, with a gross margin of 17.31%. In 2018, Kangtuo Infrared achieved operating income of 162 million yuan in the first three quarters, an increase of 11.00% over the previous year, and net profit of 43 million yuan, an increase of 3.67% over the previous year. The scale of investment in railway fixed assets in China was stable during the “13th Five-Year Plan” period. In 2017, the fixed asset investment in the national railway industry reached 801 billion yuan, of which the national railway completed 760.6 billion yuan, and put into operation 3038 kilometers of new lines. In 2018, the national railway fixed asset investment arrangement was 732 billion yuan, including 702 billion yuan for national railways. The increase in railway operating mileage and the increase in vehicle operation speed place higher demands on railway operation safety, which creates opportunities for the development of the railway safety inspection and maintenance industry. The market position of the main products is stable, and new products are constantly being developed to expand new markets. Kangtuo infrared products expand the markets of local railways and large enterprises; image products increase the promotion of new products on the basis of maintaining market share; and acoustic and information technology products continue to expand the market. In the field of intelligent equipment, the company has established a dual line development route for intelligent warehousing and three-dimensional parking. In addition to railway locomotive and vehicle maintenance automation products, it is also developing intelligent automated three-dimensional parking system products for urban transportation. Major asset restructuring to include high-quality intelligent equipment manufacturing assets. Kangtuo Infrared disclosed plans to restructure major assets and raise supporting capital. It plans to acquire 100% of the shares of Xuanyu Space and Xuanyu Intelligence, a wholly-owned subsidiary of the Fifth Aerospace Academy 502, by issuing shares and paying cash. The transaction price is 968 million yuan. At the same time, it will raise no more than 794 million yuan in supporting capital to pay transaction consideration, intermediary fees, and investment-related projects. Among them, Kangtuo Infrared's related aerospace investment subscription raised no more than 200 million yuan. After the restructuring is completed, Kangtuo Infrared's main business will increase intelligent equipment business such as intelligent testing and simulation systems. Profit forecasts and investment advice. Since the major asset restructuring has not yet been completed, its impact on the company's performance and share capital will not be considered yet. We expect Kangtuo IR's EPS from 2018 to 2020 to be 0.15 yuan/share, 0.16 yuan/share, and 0.18 yuan/share, respectively. Considering Kangtuo Infrared's industrial positioning as an intelligent equipment platform and combined with the valuation level of comparable companies, we gave the company a PE valuation of 50 times to 55 times in 2018, with a corresponding reasonable value range of 7.50 yuan to 8.25 yuan, covering a “superior to the market” rating for the first time. Risk warning. The scale of investment in railway fixed assets has declined; profit margins have declined due to increased competition; there is a risk of bad debts on accounts receivable; and there is uncertainty about major asset restructuring.