The “Comprehensive Cooperation Agreement” signed between the company and Huawei. In the future, the company will join the Huawei ecosystem to deeply bind the Huawei technology route, jointly build a more complete end-to-end capability system around core key areas such as 5G and artificial intelligence, and create a new pattern of smart transportation construction. The signing of this cooperation agreement unravels the beginning of a deeper cooperative relationship between the company and Huawei, laying a solid foundation for the two sides to jointly create collaboration in the field of smart transportation and work together to carry out higher-level and deeper business cooperation.

Incident: On November 28, 2023, Beijing Jiaxun Feihong Electric Co., Ltd. and Huawei Technology Co., Ltd. signed a “Comprehensive Cooperation Agreement” at the headquarters of Huawei in Shenzhen. The signing of the cooperation agreement marks that the two sides will target vertical industries such as railways, urban rail transit, and civil aviation. Based on core key fields such as artificial intelligence, 5G, safety and reliability, etc., the two sides will carry out comprehensive strategic ecological cooperation in technology research and development, market expansion, and industry co-construction, explore more efficient and intelligent industry solutions, and jointly accelerate smart transportation construction.

The Huawei Airport and Rail Corps focuses on building ICT digital infrastructure for the airport and rail industry, and promoting the intelligence and digitalization of the industry. The Huawei Airport and Rail Corps was founded on March 30, 2022. It is one of the second batch of top ten teams of Huawei. It focuses on helping the digital development of the industry with a “one vertical, one horizontal” strategy.

The team is committed to building a solid ICT digital foundation for the airport and rail industry, and building smart applications with partners and customers. ICT solutions in this field include rebuilding perception, reshaping connectivity, reconstructing platforms, and scenario-based solutions built on digital infrastructure. The Airport and Rail Corps has served more than 100 airports and airlines, more than 150,000 kilometers of railways, and more than 300 urban rail lines in more than 40 countries and regions around the world.

The cooperative relationship with Huawei has been further deepened, and the addition of the Huawei ecosystem is deeply tied to the Huawei technology route. Currently, China's transportation industry is in a critical period of overall acceleration of digital and intelligent construction. In September 2023, China Railway Group issued the “Digital Railway Plan”, which proposes that the digital transformation of China's railways will be fully completed by 2035. Previously, the company joined hands with its partner Huawei Technologies Co., Ltd. to successfully explore the Mozambican market, apply LTE-R technology to the Mozambican railway project, and adopt international standards and a complete set of mature product solutions based in China. In the future, the company will join the Huawei ecosystem, be deeply tied to the Huawei technology route, and develop safe and reliable products and solutions for vertical industries based on basic information technology and equipment such as operating systems (Hongmeng, Euler), servers (Kunpeng, Shengteng), 5G, cloud computing, and big models.

Investment proposal: The signing of the “Comprehensive Cooperation Agreement” has laid a solid foundation for the two sides to create joint collaboration in the field of smart transportation and work together to carry out higher-level and deeper business cooperation. Focusing on core key fields such as 5G and artificial intelligence, targeting digital and intelligent business scenarios in vertical industries, we will build a more complete end-to-end capability system and create a new pattern of smart transportation construction. We maintain our profit forecast and expect to achieve operating income of 1,193/12.91/1,399 billion yuan in 2023/24/25; the company expects net profit of 0.88/1.06/139 million yuan in 2023/24/25, maintaining a “highly recommended” rating.

Risk warning: The 5G-R advancement process falls short of expectations, the pace of 5G-R equipment replacement has been extended, the tender price of 5G-R equipment falls short of expectations, and the competitive landscape of the industry has changed.