The company is the leading enterprise in the rail transit operation and maintenance industry in China. The company has completed the platform layout of the whole industry chain of the only five professional operation and maintenance equipment in China, namely, vehicles, lines, signals, power supply and stations; at present, it covers more than 400 rail transit operation, maintenance and maintenance products covering high-speed rail, general speed and urban rail. In November 2018, the company joined the CIC Group, providing the company with strong capital and platform support. In recent years, the company has successively laid out projects such as Taizhou Yu Railway Line S1, Hangzhou-Shaotai High-speed Railway, Tianjin Metro Line 7, Tangshan Port Freight Railway and so on. The whole line intelligent operation and maintenance situation has been gradually opened. From January to September 2019, the company signed 2.4 billion yuan in new contracts, an increase of 31% over the same period last year, and new contracts continued to grow rapidly. At present, the company is transforming from an operation and maintenance equipment supplier to a full-line intelligent operation and maintenance service provider. In 2019, traditional equipment, intelligent equipment and operation and maintenance accounted for 62%, 13% and 19%, respectively. Five years later, the company plans that the operation and maintenance business is equivalent to the equipment business, and the intelligent equipment business is equivalent to the traditional equipment business, and the proportion of the operation and maintenance intelligent equipment business is expected to continue to increase in the future.

Business performance has grown steadily, profitability has continued to improve, and the cash flow situation has improved. In the first three quarters of 2019, the company achieved revenue of 1.56 billion yuan, an increase of 21.0% over the same period last year, a net profit of 150 million yuan, an increase of 20.1% over the same period last year, and a net profit of 130 million yuan, an increase of 10.5% over the same period last year. In the first three quarters, the company's gross profit margin reached 53.3%, up 4.7 pct from the same period last year; net profit was 10.1%, down 0.1 pct from the same period last year; ROE was 2.1% lower than the same period last year, and 0.3 pct higher than the same period last year; the company's overall profitability has been enhanced. In the first three quarters, the net cash flow of the company's operating activities was-190 million yuan, an increase of 700 million yuan over the same period last year. Although the cash flow was still negative, it improved significantly compared with the same period last year. In the future, the company will transform to an intelligent operation and maintenance service provider, and its cash flow is expected to continue to improve.

After the railway operation and maintenance, the market has entered a period of golden development, and the trillion market space is worth looking forward to. According to the development experience of the international rail transportation industry, the market capacity of the post-operation and maintenance market is larger than that of vehicle manufacturing and engineering construction, and the future market space of the whole line operation and maintenance service industry is huge. According to the data released by China High-speed Railway, the railway mileage in operation will reach 200000 km in 2028, of which 45000 km will be high-speed railway, with a total construction investment of 21.4 trillion yuan and a market size of 535 billion yuan corresponding to operation and maintenance. In terms of urban rail: the urban planning operation line will exceed 15000 km in 2028, the total construction investment will reach 15 trillion yuan, and the market scale after corresponding operation and maintenance will reach 375 billion yuan. In terms of local freight railways, the mileage of operation will reach 40,000 km in 2028, the total construction investment will reach 2.4 trillion yuan, and the market scale after corresponding operation and maintenance will reach 60 billion yuan. It is estimated that by 2028, the market size of the whole railway operation and maintenance will be about 1 trillion yuan, and the company will fully benefit from the rapid development of the industry.

Investment suggestion: the company is the leader in the rail transit operation and maintenance industry in China. We estimate that the company's earnings per share in 2019 / 2020 will be 0.16 pound 0.21 yuan respectively, and the current share price will be 15.9 times PE, respectively, giving the company a "cautious recommendation" rating for the first time.

Risk tips: macroeconomic decline; railway, urban planning construction is not as expected; market competition is intensified; goodwill is higher; accounts receivable is higher; performance is lower than expected.