Matters: The company announced on the evening of July 23, 2019, that the company plans to participate in the mixed reform of state-owned enterprises to increase capital of Shandong Express Credit Union Payment Co., Ltd. The company plans to obtain the right to increase the capital of Credit Union Pay by participating in the public listing of the Shandong Property Exchange Center to introduce strategic investors, and subscribe for 54 million yuan of this additional registered capital with no more than 80 million yuan of its own capital. After completing the capital increase, the company will hold 9% of Xinlian Pay's shares. The company will be delisted individually or jointly delisted in the form of a consortium with other intended investors. Currently, the company has not signed the relevant agreement. At the same time, the company plans to use an investment of no more than 13 million yuan to cover the target company's long-term receivables of no more than 13 million yuan (including interest, late fees, liquidated damages, etc.) and obtain all rights in the corresponding claims. Guoxin Computer's view: 1) Credit Union Pay is the ETC card issuer and operator of Shandong Expressway. It has transformed and deeply deployed the ETC post-market, using ETC as an entry point to develop ETC aftermarket services such as ETC+ logistics, ETC+ refueling, and ETC+ finance. The company plans to consolidate the company's leading position in the ETC equipment market by participating in Xinlian Pay's capital increase and stock expansion projects, taking advantage of Xinlian Pay's advantages in ETC issuance and tertiary payments. At the same time, the company will actively promote collaboration and in-depth cooperation with Xinlian Pay in various fields to achieve customer resource and channel sharing, further expand ETC application scenarios (ETC post-market) and the company's business areas, and fully seize the ETC market opportunities brought about by the abolition of provincial toll gates to help the company continue to develop and improve profitability. 2) In the context of the rapid spread of ETC, the application scenarios of ETC payments are expected to extend to car consumption scenarios such as parking lots, street parking, gas stations, parking lots, and car beauty. Among them, the parking lot scenario is the most definitive, opening up 10 billion dollars of growth space. The company began in-depth layout of the parking lot scene in 2013, and cooperated with Beijing ETC supplier Express to complete projects such as Bird's Nest and Water Cube. Currently, the company has 500+ parking lot application cases. The company provides products and services such as RSU equipment, secondary sorting platforms, and installation integration. It has already generated large-scale revenue in 2018, and is ahead of other competitors in layout and cases. 3) Benefiting from policy dividends in the past two years, the ETC market prosperity has increased rapidly, which is expected to bring a significant increase in performance to the company and sufficient financial resources to the company. The proposed capital increase and equity investment may kick off the company's investment, mergers and acquisitions to enhance the overall competitiveness of ETC. The company is expected to develop collaboratively with endogenesis and extension, expand business boundaries and scale, and accelerate the transformation and upgrading of the company from equipment to integration to management and control platform solutions through mergers and acquisitions teams or companies. Continuing to maintain the previous profit forecast, net profit is expected to be 506/3.06/373 million yuan in 2019-2021, with a year-on-year growth rate of 2237/-39/ 22%; diluted EPS = 4.30/2.60/3.17 yuan. The current stock price corresponds to PE = 11/19/15x, maintaining the “increased holdings” rating. Comment: Xinlian Payment is the ETC card issuer and operator of the Shandong Expressway. After the transformation and deep layout of the ETC market, Xinlian Payment is the ETC card issuer and operator of the Shandong Expressway. It is a non-bank financial institution regulated by the People's Bank of China. It has two third-party payment licenses (Internet, prepaid cards) issued by the central bank. It is the vice president unit of the China Petroleum Circulation Association and the vice president unit of the China Logistics Association. The main business includes ETC business, financial business, payment business, and refueling business. Xinlian Payment is based on expressway ETC. Through continuous integration and innovation, Xinlian Payment has completed the transformation from an ETC issuer to a data technology company, forming a third party payment sector supported by Internet payments and prepaid cards, a logistics finance sector supported by ETC, fuel, and Manyi.com, and a smart transportation sector supported by senseless payments, “high-speed ETC,” and “e-expressways.” Generally speaking, each provincial highway bureau has subsidiaries as ETC operators within the province to manage the issuance and operation of ETC cards. Credit Union Pay is the ETC card issuer and operator of Shandong Expressway. Before this capital increase was completed, Credit Union Pay was a wholly-owned subsidiary of Shandong Expressway Group. Shandong Expressway Group is a large wholly state-owned enterprise group with the management leadership team of the Shandong Provincial Committee and the Provincial State-owned Assets Administration Commission performing funder duties. Its main business covers the transportation infrastructure sector and smart transportation investment, construction, operation, management, and comprehensive development of supporting land for transportation infrastructure; logistics and related supporting services; and financial asset investment and management.Up to now, Shandong Expressway Group has a registered capital of 23.3 billion yuan and total assets of 638.6 billion yuan. Its asset scale ranks first among provincially managed enterprises and the same industry in the country. The business field has successively covered 22 provinces across the country, 106 countries and regions overseas, has domestic AAA grade and international A grade credit ratings, and has been selected as one of the “Top 500 Chinese Enterprises” for more than 10 years. Shandong Expressway Group has three listed companies, Shandong Expressway (600350.SH), Shandong Road and Bridge (000498.SZ), and China Shandong Expressway Financial Group (00412.HK), and more than 20 wholly-owned and holding subsidiaries. Benefiting from the abolition of provincial toll gates, the company's ETC card issuing business began to experience high growth in 2019. From January to May 2019, it achieved operating income of 391 million yuan, accounting for 54.78% of 2018 revenue; net profit of 25.5868 million yuan, which is basically the same as the full year of 2018 results. It is proposed to increase capital investment, consolidate the company's leading position in the ETC equipment market, and collaborate to develop the ETC post-market. The company plans to consolidate the company's leading position in the ETC equipment market by participating in the Xinlian Payment capital increase and expansion project, and consolidate the company's leading position in the ETC equipment market by taking advantage of Xinlian Pay's advantages in ETC issuance and tertiary payments. At the same time, the company will actively promote in-depth cooperation with Xinlian Pay in various fields to achieve customer resource and channel sharing, and further expand ETC application scenarios (ETC post-market) and the company's business areas, and fully grasp the ETC market brought about by the withdrawal of inter-provincial toll gates Opportunities to help the company continue to develop and improve profitability. (1) ETC users are exploding, and the post-ETC market is worth paying attention to. Industry prosperity is expected to continue. The National Development and Reform Commission said on June 4 that by the end of December 2019, the number of expressway electronic toll free toll (ETC) users nationwide would exceed 180 million, with full ETC coverage at expressway toll gates. According to the above data, ETC added more than 100 million users in 2019. In the context of the rapid spread of ETC, the application scenarios of ETC payments are expected to extend to car consumption scenarios such as parking lots, on-street parking, gas stations, parking lots, and car beauty. Furthermore, starting in July 2020, OBU will also enter pre-assembly options. Among them, the parking lot scenario is the most definitive, opening up 10 billion dollars of growth space. According to the “Implementation Plan for Accelerating the Application of Electronic No-Stop Express Tolls on Highways” recently issued by the National Development and Reform Commission and the Ministry of Transport, full coverage of ETC services for parking scenarios at major transportation stations such as airports, railway stations, passenger terminals, and port terminals will basically be achieved by the end of December 2020. Promote the application of ETC in parking scenarios such as residential areas and tourist attractions. The Ministry of Transport's policies are continuous. Under the clear requirements of policy documents, transportation stations, residential areas, and tourist attractions are expected to be promoted relatively quickly, and government-related scenarios such as schools and hospitals are also expected to expand rapidly. Currently, the Ministry of Transport is mainly focusing on abolishing provincial toll gates, and it is expected that in 2020 it will begin to pay simultaneous attention to the renovation of parking lots. Regarding the parking lot ETC renovation market, our estimates are as follows: only estimating government-related transportation stations, residential areas, tourist attractions, and future school and hospital markets that are likely to grow rapidly in the past two years: ① Airports: According to data from the Civil Aviation Administration of China, the number of civil airports in the country in 2019 was 235 ② Railway stations: According to 12306 station information, there were 2,853 railway stations in the country in 2019, including passenger and non-passenger terminals ③ bus stations: Assuming that all administrative districts above the county level have their own bus station, then the corresponding number is about 3,000. According to data from the National Bureau of Statistics, there are 23 provinces, 5 autonomous regions, 4 municipalities directly under the Central Government, 2 special administrative regions; 50 regions (states, unions); 661 cities, including: 4 municipalities directly under the Central Government; 283 prefecture-level cities; 374 county-level cities; 1,636 counties (autonomous counties, flags, autonomous flags, special zones and forest areas); and 852 municipal districts. ④ Ports and terminals: According to data from the Ministry of Transport, the number of large ports with 100 million tons in China reached 34 in 2017. According to data from the General Administration of Customs, there are 135 water transport ports in total. ⑤ Residential neighborhoods: According to the 2016 Gaode Community Data Report, there are 300,000 neighborhoods in the country. ⑥ Tourist attractions: According to data from the National Tourism Administration, in 2017, there were more than 28,000 scenic spots of various types in the country, and the number of A-level tourist attractions was about 9,000. ⑦ Schools: The Ministry of Education issued the “2017 National Education Development Statistics Bulletin”. In 2017, there were 513,800 schools of all types at all levels, including 177,600 private schools of all types at all levels in the country, leading to about 336,200 non-private schools ⑧ Hospitals: According to data from the National Health and Health Commission, about 12,000 public hospitals nationwide, and the cost of single-lane ETC transformation in 2018 was about 50,000 yuan, so the transportation station renovation market is about 1.1 billion yuan (since the initial renovation is still calculated at the cost of 50,000/set of lanes ). Assuming that the long-term price will stabilize at around 20,000 yuan in the future, the market size of residential areas and tourist attractions will be 6.74 billion yuan, and the market size of public schools and hospitals will be 13.928 billion yuan.The above market size is approximately $21.1 billion. (2) The parking lot scenario The company has benefited deeply. It is expected that the company's merger and acquisition transformation solution provider has just opened up. The company began in-depth layout of the parking lot scene in 2013. It cooperated with Beijing ETC supplier Express to complete the launch of projects such as Bird's Nest and Water Cube. Currently, the company has more than 500 parking lot application cases. The company provides products and services such as RSU equipment, secondary sorting platforms, and installation integration. It has already generated large-scale revenue in 2018, and is ahead of other competitors in terms of layout and cases. Benefiting from policy dividends in the past two years, the ETC market prosperity has increased rapidly, which is expected to bring a significant increase in performance to the company and sufficient financial resources to the company. The proposed capital increase and equity investment may have kicked off the company's investment, mergers and acquisitions to enhance the overall competitiveness of ETC. The company is expected to develop collaboratively with endogenesis and extension, expand business boundaries and scale, and accelerate the transformation and upgrading of the company from equipment to integration to management and control platform solutions through mergers and acquisitions teams or companies. (3) Market participants from other listed companies have also begun investing in mergers and acquisitions of high-quality ETC assets. On May 1, the listed company Huaming Intelligence announced that it plans to acquire Juli Technology, one of the three leading suppliers of ETC equipment; on July 10, Qianfang Technology announced that it plans to obtain 14% of the shares of Shandong High-speed Credit Union Payment Co., Ltd. through a capital increase. Listed companies and other capital have begun to intervene in the ETC market, demonstrating the high prosperity and sustainability of the industry. Investment suggestions: 1) Xinlian Payment is the ETC card issuer and operator of Shandong Expressway. The transformation and deep layout of the ETC aftermarket will be developed using ETC as an entry point to develop ETC aftermarket services such as ETC+ logistics, ETC+ refueling, and ETC+ finance. The company plans to consolidate the company's leading position in the ETC equipment market by participating in Xinlian Pay's capital increase and stock expansion projects, taking advantage of Xinlian Pay's advantages in ETC issuance and tertiary payments. At the same time, the company will actively promote collaboration and in-depth cooperation with Xinlian Pay in various fields to achieve customer resource and channel sharing, further expand ETC application scenarios (ETC post-market) and the company's business areas, fully seize the ETC market opportunities brought about by the withdrawal of inter-provincial toll gates, and help the company continue to develop and improve profitability. 2) In the context of the rapid spread of ETC, the application scenarios of ETC payments are expected to extend to car consumption scenarios such as parking lots, street parking, gas stations, parking lots, and car beauty. Among them, the parking lot scenario is the most definitive, opening up 10 billion dollars of growth space. The company began in-depth layout of the parking lot scene in 2013, and cooperated with Beijing ETC supplier Express to complete projects such as Bird's Nest and Water Cube. Currently, the company has 500+ parking lot application cases. The company provides products and services such as RSU equipment, secondary sorting platforms, and installation integration. It has already generated large-scale revenue in 2018, and is ahead of other competitors in terms of layout and cases. 3) Benefiting from policy dividends in the past two years, the ETC market prosperity has increased rapidly, which is expected to bring a significant increase in performance to the company and sufficient financial resources to the company. The proposed capital increase and equity investment may kick off the company's investment, mergers and acquisitions to enhance the overall competitiveness of ETC. The company is expected to develop collaboratively with endogenesis and extension, expand business boundaries and scale, and accelerate the transformation and upgrading of the company from equipment to integration to management and control platform solutions through mergers and acquisitions teams or companies. Continuing to maintain the previous profit forecast, net profit from the mother in 2019-2021 is expected to be 506/3.06/373 million yuan, a year-on-year growth rate of 2237/-39/ 22%; diluted EPS = 4.30/2.60/3.17 yuan. The current stock price corresponds to PE = 11/19/15x, maintaining the “increased holdings” rating. Risk warning: Currently, the company has not signed a relevant agreement, so there is a possibility that the transaction will not be successful; ETC investment growth is lower than expected; parking fees and V2X business development are lower than expected.