Matters: Shenzhou High Speed Rail released its 2019 three-quarter report. The company achieved operating income of 1.56 billion yuan in the first three quarters of 2019, an increase of 20.98% over the previous year, and realized net profit attributable to shareholders of listed companies 148 million yuan, an increase of 20.13% over the previous year. The third quarter achieved quarterly operating income of 627 million yuan, an increase of 12.13% over the previous year, and realized net profit attributable to shareholders of listed companies of 82.22 million yuan, an increase of 32.22% over the previous year. Comment: Revenue is growing steadily, profitability has improved, cash flow continues to improve, and new orders have reached new highs. In the first three quarters of 2019, the company achieved revenue of 1.56 billion yuan, an increase of 20.98% over the previous year, and achieved revenue of 627 million yuan in a single quarter in the third quarter, an increase of 12.13% over the previous year, maintaining steady growth. The consolidated gross margin reached 53.30%, an increase of 4.78 percentage points over the same period last year. Cash flow continued to improve. As of the end of the third quarter, the company's net cash outflow from operating activities was 191 million yuan, a significant improvement from the net outflow of 893 million yuan in the same period last year. Cash flow from operating activities is expected to be corrected throughout the year. The company signed a new contract of 2,404.84 million yuan in the first three quarters, an increase of 31% over the previous year. Orders in the railway market and the urban rail market all increased. It won the bid for the Tianjin Line 7 PPP project, starting the entire subway line operation and maintenance model. The company and its wholly-owned subsidiary Shenzhou High Speed Rail Transit Operation and Management Co., Ltd. invested 157 million yuan to form a consortium with China Construction Co., Ltd. and its related parties to win the bid for the first phase of the Tianjin Metro Line 7 project PPP project. Through the project, the company will fully participate in the full life cycle of rail transit business. On the one hand, it will expand the company's own equipment services, etc., and on the other hand, it will accumulate experience in rail transit PPP projects, obtain complete rail transit operation management, rail transit line maintenance performance, and operation and maintenance system equipment performance, further promote the implementation of the company's strategic planning, lay a solid foundation for the company to expand widely in rail transit operation and maintenance business in the future, and open up market space. After the rail transit, the market space is vast, and the 100-billion-level market is poised to develop. With the formation and development of China's rail transit network, the rail transit industry is now gradually entering a stage where equal emphasis is placed on construction, operation and maintenance. The approval of the urban rail industry has accelerated since the new regulation No. 52 last year. It is estimated that the number of new subway traffic mileage will be increased by more than 1,000 kilometers each year. Light rail and other multi-standard rail transit have huge potential in the future. According to estimates of the railway and urban rail conditions currently in operation, construction and planning, China's urban rail operating mileage is expected to reach 16,265 kilometers by 2023, with a CAGR of 19.9% in 2019-2023. According to industry experience, rail transit operation and maintenance expenses generally account for 2% to 3% of total investment. Based on a median value of 2.5%, considering replacement costs, the average cost per kilometer is 1 billion yuan. The urban rail operation and maintenance market is expected to reach 406.6 billion yuan by 2023. Moreover, most cities, especially third- and fourth-tier cities, have no experience in constructing and operating urban rails, so professional team participation is urgently needed. Profit forecast: Considering the increase in the company's profitability, we raised the company's EPS forecast value for 2019-2021 to 0.16, 0.22, 0.28 (the original forecast value was 0.15, 0.21, 0.26), corresponding to PE by 22, 17, and 13 times. Considering the continued growth in on-hand orders, the increase in performance is expected to continue to be reflected in the future, giving the Shenzhou High Speed Rail a valuation of 30 times in 2019. The target price was raised to 4.8 yuan, maintaining the “recommended” rating. Risk warning: railway fixed asset investment is declining, urban rail progress is slow, and promotion of new products falls short of expectations.