Incidents: According to Zhonghe Technology's 2019 three-quarter report, the company's revenue for the first three quarters was 1.68 billion yuan, up 42.54% year on year; net profit was 83.88 million yuan, up 105% year on year; net profit after deduction was 28.71 million yuan, down 12.8% year on year. Non-recurring profit and loss was 55.1616 million, of which 17.781 million were subsidized by the government. Comment: 1. The rail transit business maintained rapid growth in Q3, revenue increased by more than 60% in a single quarter, and the company's revenue for the first three quarters of the year was 1.68 billion yuan, up 42.54% year-on-year. The 19Q1-Q3 growth rates were 69.56%, 8.47%, and 64.89%, respectively. 1) Nearly 70% of revenue in the first three quarters came from rail transit (signals+AFC+mobile payments), with a year-on-year growth rate of more than 80%, continuing to accelerate from 19H1. 2) Haituo Environment and Suzhou Science and Technology are responsible for energy saving and environmental protection, with revenue of more than 500 million yuan, a slight decrease over the previous year. 2. The absolute amount of expenses for the period was large, but net profit after exceeding the break-even point released flexibility, net profit for the first three quarters was 59.136,800 yuan, up 105% year-on-year, far exceeding the revenue growth rate. Mainly, the rail transit business had just surpassed the break-even line, and net profit elasticity far exceeded revenue elasticity. The consolidated gross margin for the first three quarters increased slightly by 30%. The absolute amount of expenses during the period is better controlled, and the rail transit business is flexible. 1) Sales expenses of 40,3574 million yuan increased 13.56% year on year; 2) management expenses of 150 million yuan increased 38.68% year on year, and equity incentive expenses of nearly 4.5 million; 3) R&D expenses of 108 million yuan increased 22.63% year on year; 4) financial expenses of 97.9241 million yuan, up 112.66% year on year, of which exchange earnings were about 10 million yuan. There are plenty of orders in hand, and winning bids to upgrade routes or open up new markets. In August of this year, it won the bid for the operation equipment overhaul and renewal project (signal system) for the Jiaochangkou to Xinshancun section of Chongqing Rail Transit Line 2, worth 399.7 million yuan. The cost of the modified line is about twice that of the new line, and the gross margin is expected to be higher than that of the new line. China's current non-CBTC line mileage exceeds 565 kilometers, and the transformation market space is about 9 billion yuan. The future is a large incremental market. As of August, signal systems won a total of 1,675 billion yuan for front-line projects, including 1,392 billion yuan for signal systems developed in China, accounting for 83% of the amount of new front-line projects that won bids this year. 3. The plan is to gradually divest the energy saving and environmental protection business, the main rail transport company announced on September 17 that it signed a cooperation framework agreement with Shanghai Shenneng. It plans to sell 90% of the shares in Zhonghe's environmental protection business to Shenneng in stages in an all-cash manner. The plan is to gradually generate 40%, 30%, and no more than 20% in 19-21, reflecting the company's clear intention to gradually divest the energy saving and environmental protection business focusing on rail transit. Director and Vice President Lou Honghai plans to reduce his holdings by no more than 2.2 million shares (0.40% of the total share capital) on October 10, mainly for personal financial needs. Zhonghe is an outstanding participant in CBTC for urban rail. The “13th Five-Year Plan” independent signal system developed at the peak of urban rail investment is gradually being recognized by the market. Revenue is expanding, and the abundance of orders in hand will gradually be realized in performance. We expect the company to have a net profit of 150 million yuan in '19, corresponding to 25.4 times now, maintaining prudent recommendations 4. Risk warning: risk of changes in the industry environment, RMB appreciation, and tight funding for urban rail transit projects