Event: The company released the 2018 annual performance forecast: In 2018, the company achieved net profit of 310-350 million yuan, a year-on-year decrease of 64.52% - 59.94%; realized net profit of 310-350 million yuan after deducting non-return net profit of 310-350 million yuan, a year-on-year decrease of 28.06% -18.78%. Key investment points: Railway investment returned to 80 billion dollars in 2018, and 850 billion urban rail projects were approved. In terms of railways, on January 2, 2019, China Railway General Administration held a 2019 working conference and announced that in 2018, the national railway fixed asset investment reached 802.8 billion yuan, an increase of 0.22% over the previous year, compared with the 2018 investment plan of 732 billion yuan, exceeding 9.67%. In particular, according to statistics from the Big Data of Infrastructure Communications, there are 36 large-scale high-speed rail projects to be started by 2019, with a total investment of more than 1.4 trillion yuan. In terms of urban rail, in the first half of 2018, there were 233 rail transit lines under construction in 69 cities in mainland China, with a total mileage of more than 6,000 kilometers, a total investment of more than 3.6 trillion yuan, and an average annual investment of more than 500 billion yuan. Specifically, in August 2018, the Development and Reform Commission restarted the approval of urban rail transit projects that had been suspended for nearly a year, and the urban rail transit construction boom has resurfaced; as of January 4, 2019, the NDRC has approved nearly 850 billion yuan of urban rail investment projects in eight cities, including Suzhou, Chongqing, Jinan, Hangzhou, Shanghai, Shenyang, Changchun, and Wuhan. According to the calculation that equipment investment accounts for 10% of the total investment, the rail transit equipment market will average more than 100 billion yuan per year, and will continue to grow in the future. We believe that domestic rail transit construction will continue to grow, and demand for equipment such as vehicle segment construction, signal systems, lines, and power supply maintenance equipment is strong. SDIC Hi-Tech completed the tender acquisition and signed a strategic agreement with Fosun Railway Investment. The company provides intelligent equipment systems for rail transit operation and maintenance throughout the industry chain. Its business covers five major fields of expertise: vehicles, signals, lines, power supply, and stations. Being optimistic about the development prospects of the rail transit industry and the company's development potential, SDIC Hi-Tech paid 2,987 billion yuan on November 10, 2018 to complete an offer to acquire 564 million shares of the company (20% shareholding ratio), becoming the company's largest shareholder. SDIC Hi-Tech has a state-owned background and provides platform support for the company to develop the entire rail transit line business, thus achieving long-term sustainable development. On December 27, 2018, the company and Fosun Railway Investment signed a “Strategic Cooperation Framework Agreement” to give full play to their respective advantages, form scale effects and overall advantages, innovate cooperation models, and jointly promote the development of rail transit business. Use rail transit PPP as a means to promote the implementation of strategic plans. The PPP model for rail transit has always been one of the main models for rail transit construction and operation in various countries, and has the following two major advantages: ① In the post-construction operation process, continuous cash flow is obtained through ticketing, advertising, commercial development, etc.; ② It has a government public service background, is generally subsidized and supported by government financial resources, and the overall risk is low. The company relies on major state-owned shareholders to participate in projects in the form of equity investment and fund share subscriptions to obtain business orders for operation and maintenance equipment, operation management, maintenance, planning and consulting, etc., and to share the benefits of industrial upgrading. In 2018, the company implemented its PPP strategy, invested 283 million yuan to participate in the first phase of the Taizhou Railway S1 PPP project, and invested 131 million yuan to participate in the Hangzhou-Shaotai High Speed Rail PPP project; it also signed a strategic agreement with China Construction Railway Investment to cooperate on PPP projects along the entire line. We expect the company's PPP business to contribute to continued performance growth. Operating performance declined, and new contracts were on the rise. In 2018, the company achieved net profit of 310-350 million yuan, a year-on-year decrease of 64.52% - 59.94%; the main reasons were: ① In 2017, the company transferred 100% of the shares of Baoli Xinda, a non-main business subsidiary, which generated non-recurring investment income of 446 million yuan, with no relevant income in 2018; ② Since 2017, new business sectors such as PPP divisions have been established, investing more than 30 million yuan in 2018; ③ New orders signed in 2018 have increased marketing and market investment by more than 60 million yuan ; ④ In 2018, R&D investment increased by 34% to 220 million yuan; ⑤ Affected by tight market capital, the company's financing scale and financing costs rose, and financial expenses in 2018 increased by more than 30 million yuan; ⑥ The implementation of the restricted stock incentive plan was terminated in 2018. The estimated share payment fees were not transferred back, and payment fees for previously restricted shares were withdrawn at an accelerated pace, affecting net profit of about 37.81 million yuan in total. The company continued to strengthen its market development efforts and achieved significant growth in new contracts; from January to September 2018, the company signed 1,836 billion yuan in new contracts, an increase of 78% over the previous year. Among them, China Railway signed 785 million yuan of new contracts, an increase of 14.93% over the previous year; 522 million yuan for urban rail, an increase of 133.82%; new contracts signed by OEMs of 191 million yuan, an increase of 491.80%; and new contracts signed in overseas markets of 339 million yuan, an increase of 258.60% over the previous year. First coverage, giving a “neutral” rating. The company's net profit for 2018-2020 is estimated to be 319 million yuan, 427 million yuan, and 526 million yuan respectively. The corresponding EPS is 0.11 yuan/share, 0.15 yuan/share, and 0.19 yuan/share, respectively. Based on the closing price of 3.64 yuan on January 31, the corresponding PE is 32, 24, and 19 times, respectively. The company is positioned as a rail transit operation and maintenance platform company, and is expected to benefit from the increase in domestic rail transit investment sentiment; we will continue to track the company's orders and performance confirmation, and give it a “neutral” rating for the first time. Risk warning: Domestic rail transit investment development falls short of expectations; company performance development falls short of expectations; company order completion falls short of expectations; uncertain impact of investment income on company performance; uncertain risk of PPP project investment.