3Q19 performance is in line with our expectations

Connie announced its results for the first three quarters of 2019: operating income was 2.557 billion yuan, down 5.6% from the same period last year; net profit from its mother was 214 million yuan, up 140.2% from the same period last year, or 0.22 yuan per share. In the third quarter, the operating income was 737 million yuan, down 18.1% from the same period last year, and the net profit was 78 million yuan, up 3.3% from the same period last year. The performance is in line with our expectations.

Gross profit margin rose sharply and cash flow improved significantly. 3Q19's comprehensive gross profit margin is 39.7%, which is higher than the previous year / month-on-month 10.3/7.5ppt. The rate of sales / management / R & D expenses increased year on year (1.1/0.4/1.4ppt), while the rate of financial expenses remained stable. As 3Q19's non-operating expenses increased by 22.57 million yuan over the same period last year, the company's net profit margin was 10.6% in the third quarter, an increase in 2.2ppt compared with the same period last year. The net cash flow of 3Q19's operating activities became regular year-on-year, with a net inflow of 93 million yuan, an increase of 144 million yuan over the same period last year.

Trend of development

Longxin Technology has completed the divestiture. The company announced on October 24, 2019 that 100% of its subsidiary Longxin Technology has been transferred to the bail-out Development Fund, in line with our previous expectations. And according to the transfer agreement signed by the company, the 100% equity transfer price of Longxin Technology is 400 million yuan. At present, the company has received the first transfer price of 240 million yuan, and we expect the second transfer price of 160 million yuan to be completed within 2 months. In addition, the company and the rescue fund have agreed that if the income from the subsequent disposal of Longxin Technology is more than 400 million yuan, 90% of the disposal income will be owned by the listed company.

The short-term growth rate of the national railway plate is likely to slow. According to our statistics, up to now, the total tender for bullet trains is 126 (including intercity EMU) and 113 EMU. We believe that 100 new EMUs are expected to be tendered by the end of 2019, but the overall bidding volume of EMU for the whole year will still be lower than that expected at the beginning of the year. Affected by the lower-than-expected bidding for the bullet train, we expect the growth rate of the company's 4Q19 moving door business to slow down in the short term.

The high prosperity of the urban rail plate is expected to be maintained. We judge that a total of 9993km of new subway lines were added nationwide in 2019-20, an increase of 1% and 39% over the same period last year, and as of 3Q19, the order of the leading domestic rail transit manufacturer is at a high level of 152 billion yuan. we believe that the company's urban rail business is expected to maintain a good growth trend with the high delivery of subway vehicles.

Profit forecast and valuation

We keep the company's 20-year profit forecast for 2019 Universe unchanged. The company's current share price corresponds to 2019 Universe, 17.4 Placement in 20 years, and 14.2 times Pax E. We keep the company's target price of 5.45 yuan and neutral rating unchanged, with the target price corresponding to 2019 Placer, which is 15 times Pmax E in 2019, which has 3.2% upside compared to the current stock price.

Risk

The growth rate of newly signed orders for mobile door business has slowed down.