Shenzhou High Speed Rail announced that in the first half of 2019, the company achieved operating income of 933 million yuan, an increase of 27.75% over the previous year; net profit attributable to shareholders of listed companies was 66.21 million yuan, an increase of 7.87% over the previous year. Comment: Revenue is growing rapidly, and gross margin has increased. During the reporting period, the company achieved revenue of 933 million yuan, an increase of 27.75%. Among them, locomotive and vehicle operation and maintenance/power supply system operation and maintenance/rail traffic signal system/public works maintenance achieved 559 million/114 million/144 million respectively, an increase of 21.38%/-40.02%/25.78%/102.86% over the previous year. The comprehensive gross margin reached 54.50%, an increase of 3.38 percentage points over the same period last year. Mainly due to the increase in gross profit in the locomotive and rolling stock operation and maintenance business, which accounts for relatively high revenue, the gross profit margin for the reporting period was 56.89%, an increase of 6.89 percentage points over the same period last year. Market expansion period+R&D investment is high, and the cost ratio is still high. The company's expense ratio during the reporting period was 46.57%. Although down 1.13 percentage points from the same period last year, it is still high. Among them, the sales expense ratio was 12.28%, down 0.76 percentage points from the same period last year. The company is in a period of market expansion, especially in the urban rail market. Sales expenses brought about a significant increase in the amount of new orders; the management fee ratio was 19.87%, down 1.04 percentage points from the same period of the previous year; the R&D expense ratio was 10.65%, up 0.15 percentage points from the same period last year; and the financial expenses ratio was 3.78%, up 0.52 percentage points from the same period last year. Net cash flow from operating activities has improved significantly, and asset quality has improved. The net cash flow from the company's operating activities during the reporting period was approximately -230 million yuan. Major operating expenses included payment of 120 million yuan for logistics service equipment for procurement routes and 110 million yuan for R&D investment. Compared with the same period last year, cash inflow from operating activities increased by 31%, cash outflow from operating activities decreased by 17%, and net cash flow from operating activities improved significantly. The company strengthened accounts receivable and inventory management. During the reporting period, accounts receivable turnover and inventory turnover both improved, and asset quality improved. New orders reached a record high, and future profit growth can be expected. During the reporting period, the amount of new contracts signed by the company reached 1,331 million yuan, an increase of 85% over the previous year. Among them, the railway market signed 526 million yuan of new contracts, an increase of 103% over the previous year, and 382 million yuan in the urban rail market, an increase of 135% over the previous year. New orders have maintained high growth, laying the foundation for high future profit growth. Profit forecast: We maintain the forecast that the company's EPS for 2019-2021 will be 0.15, 0.21, and 0.26 yuan, respectively, corresponding PE will be 23 times, 17 times, and 13 times, maintain a target price of 4.5 yuan, and maintain a “recommended” rating. Risk warning: Investment in railway fixed assets has declined, urban rail is progressing slowly, and promotion of new products falls short of expectations.