Integrating high-quality resources from 502 of the Fifth Aerospace Academy, the “New Kangtuo” intelligent equipment platform set sail. The Fifth Aerospace Academy is the first high-tech unit engaged in satellite development in China. It is also currently the most powerful satellite and spacecraft development base in China. At present, the research institute is at the forefront of the world in many technologies in the three major space fields of artificial satellites, manned space, and deep space exploration. It has developed and launched more than 200 spacecraft. Currently, more than 100 spacecraft are in orbit. The Fifth Aerospace Academy started early in the field of commercial satellites. As early as 2004, they signed an export contract for the first commercial satellite. By the end of 2017, 9 commercial satellites had been delivered to international users. 502 is mainly engaged in research, design and testing of satellite and manned spacecraft control and propulsion systems and program control systems. After Kangtuo IR's major asset restructuring work began in November 2017, Kangtuo Infrared was used as the main body to integrate high-quality resources such as Xuanyu Space and Xuanyu Intelligence at a price of 970 million yuan to create the Group's intelligent equipment platform. The company's restructured assets and ancillary financing totaled $1.59 billion. Among them, Aerospace Investment, as a related party, plans to purchase no more than 200 million yuan of supporting capital raised this time, but not less than 20% of the total amount, demonstrating shareholders' confidence in the company's development.

502 has a large number of high-quality businesses. In the future, it is expected that “New Kangtuo” will be used as a platform to integrate 502's intelligent equipment business. The possibility that the Fifth Aerospace Academy will inject its high-quality assets in the future is not ruled out.

Traditional businesses have the leading market share, fully benefiting from investment in railway fixed assets and increased production of new lines.

The company's traditional products include an infrared axle temperature detection system for railway vehicles applied in the field of railway vehicle operation safety inspection, a dynamic image detection system for train operation faults, and an intelligent storage system for locomotive maintenance and maintenance applied in the field of locomotive maintenance automation. The market share of various businesses remains at the forefront of the industry, and has participated in the formulation of some standards within the industry. According to China's “13th Five-Year Plan for Railway Development”, the country's railway operating mileage will reach 150,000 kilometers in 2020, with a five-year growth rate of 24%. The national rapid railway network, which is based on the “eight vertical and eight horizontal” high-speed railways, has basically been completed, and the central and western road network framework is also being formed at an accelerated pace. By the end of 2018, the operating mileage of China's railways was about 131,000 kilometers, including the operating mileage of high-speed railways was about 29,000 kilometers, ranking first in the world. China's railway industry stipulates that THDS and TFDS systems have an overhaul or renewal cycle of 6-8 years. Corresponding railway operation safety inspection services tend to grow steadily. Kangtuo Infrared is in a leading position in the industry. With the promotion of a new round of infrastructure planning, increased investment in railway fixed assets and increased production of new lines, EMU procurement volume has also increased, which has led to an increase in the railway operation safety inspection business market, and the company will fully benefit.

The aerospace industry is developing rapidly, and the test simulation and intelligent control business has opened up room for growth. The total revenue of the satellite industry in 2018 was 277.4 billion US dollars, and the global space economy reached 360 billion US dollars. The market space is huge. China's satellite industry is developing steadily, satellite development capacity is rapidly improving, and some fields are autonomous and controllable. In 2017, the total revenue of China's satellite industry was about 360 billion yuan, accounting for about 20% of the total global satellite industry, of which the satellite manufacturing revenue was about 80 billion yuan. The “national team” China Aerospace Science and Technology and China Aerospace Science and Industry led many projects to lead the commercial space market and build a commercial satellite industry chain.

Located on an excellent track, Xuanyu Space is the largest supplier of space-grade SoC products and the largest supplier of space-grade SiP system packaging module products in the field of spacecraft core control systems in China. The company's measurement and control simulation system has been used in key projects such as Chang'e-4 subsystem ground tests, Chang'e-5 joint test equipment, rover attitude control and propulsion tests, and comprehensive space station ground test equipment. Compared with competitors, the company's products have significant advantages in terms of technical maturity, reliability, in-service application experience, and user support. Xuanyu Space has established long-term and stable cooperative relationships with important customers in the aerospace industry, and the number and amount of orders are on the rise. After the Shunyi base in the future, an annual production capacity of 20,000 microsystem modules for intelligent equipment will be formed. The company's revenue and profits are expected to explode, further opening up room for growth.

The competitive pattern of Xuanyu's intelligent industry is good, and the 10-billion-level nuclear industrial robot market will bring about an explosion of performance.

In the nuclear industry sector, since China's development started late and the nuclear industry's intelligent equipment industry has a high degree of specialization, there are relatively few competitors, and the industry competition pattern is relatively good. Xuanyu Intelligence's main customers are CNNC and its subsidiaries. Since 2018, it has actively expanded new customers and successfully developed external customers of CNNC, such as the Materials Research Institute of the China Academy of Engineering Physics. In the future, the company will strive to take a leading position in the industry in special fields such as nuclear, military, and marine at the end of the 13th Five-Year Plan. In the field of special environmental applications, the strategic emerging industry represented by the nuclear industry will become one of the main application markets for special robots and intelligent equipment in the future. Market demand will explode. It is estimated that the future annual demand for robots in the nuclear industry in China will be at the level of 10 billion. The company continues to increase investment in R&D. After the fund-raising project reaches production, it will form a production capacity of 20 sets of integrated system products, 50 sets of application products, and 140 core components per year. The company's performance is expected to explode.

Investment proposal: The Fifth Aerospace Academy is building a “new Kangtuo” intelligent equipment marketing platform. Among them, Xuanyu Space and Xuanyu Intelligent's businesses are on three high-quality tracks for aerospace chips, intelligent testing and simulation, and special robots for the nuclear industry, respectively. Traditional railway operation safety monitoring systems will also grow steadily in anticipation of increased investment in infrastructure and railway fixed assets. We expect the company to achieve net profit of 143, 2.20, and 314 million yuan in 2019-2021. The corresponding EPS is 0.20, 0.31, and 0.44 yuan respectively, and the corresponding PE is 68.92 X, 44.80 X, and 31.39 X respectively. It was covered for the first time and given a “highly recommended” rating.

Risk warning: Risk of policy changes; technology and R&D risks; fund-raising project construction falls short of expectations; orders fall short of expectations.