State-owned enterprises with high-quality urban rail transit design, strong strength, and rapid growth in the national layout. The company is a high-quality leader in the field of urban rail transit design. It is controlled by Guangzhou Metro Group. Formerly known as the Guangzhou Metro Design Institute established in 1993, it completed the shareholding system change in 2018 and was listed in 2020. It is the first urban rail design company listed on A-shares. It has two grade A qualifications in engineering survey and design, and is mainly engaged in survey and design consulting services in the field of urban rail transit. Rail transit design is highly complex and professional, with high technical, qualification and market entry barriers. The company has strong technical strength and rich project experience. By the end of 2020, it had undertaken overall design, design general contracting and engineering consulting projects for more than 100 urban rail transit lines. The company grew rapidly, achieving revenue of 1,870 million yuan in 2020, an increase of 13.73% over the previous year. The revenue CAGR in 2016-2020 reached 13.935, of which the survey and design business accounted for more than 80% of revenue. The company achieved net profit of 286 million yuan to the mother in 2020, and the 2016-2020 CAGR was 18.98%. In 2016, 2017, and 2019, the market share of the overall turnkey project line that won bids for new rail transit design reached 16.40%. The company is based in Guangzhou, has a national layout, and the scale of revenue outside Guangdong Province and overseas grew steadily. In 2016-2020, the share of total revenue increased from 42.01% to 48.20%.

Profitability is at the forefront of the design sector, and cash flow has improved and capital is sufficient. The company's profit level is high and showing an upward trend. The year-on-year growth rate of the company's net profit from 2018 to 2020 was higher than the revenue growth rate for the same period. The 2016-2020 gross margin level of rail transit design companies remained above 30%. The cost rate for the period fell from 17.88% to 13.82%, and the net interest rate increased from 13.03% in 2016 to 15.51% in 2020, the company's ROE level in 2020 was 22.42%. Expertise in rail transit design, technical barriers, fees and design content, etc. There is a big difference from other types of design sectors. Net interest rates and ROE are higher than the overall level of the transportation design sector and the architectural design sector, ranking first in the design sector. The company's net operating cash flow continued to improve in 2018-2020, amounting to 546 million yuan, 127 million yuan and 278 million yuan respectively. The company had sufficient cash on hand. At the end of 2016-2020, monetary capital increased from 938 million yuan to 1,376 million yuan, accounting for more than 30% of total assets.

The demand for urban rail transit construction is broad, and the high-barrier rail transit design industry has priority benefits. As China's urbanization rate continues to rise and urban agglomeration construction progresses, the scale of investment in urban rail transit construction, as a new type of infrastructure, has rapidly increased, and has become a new growth point for infrastructure investment. The “Outline for the Construction of a Strong Transportation Country” and the “Outline of the National Integrated Three-dimensional Transportation Network Plan” both set out requirements for urban rail transit construction goals. Plans for new and adjusted rail transit in many places were approved. At the end of 2020, the amount of research and approval for routes under construction in mainland China reached 4528.93 billion yuan. The rail transit design industry has high technical barriers and a long project cycle. It is a high value-added link. The fee level is higher than that of the conventional transportation and building design industry, and the per capita output value is far higher than that of other design sectors. At the same time, the competitive pattern of the industry is clear, showing a high degree of concentration. The company has a strong first-mover advantage in various aspects such as technical level, talent pool, project experience, etc., and is expected to benefit as urban rail construction projects around the world will continue to increase in the future. Market space can be expected to be released as a matter of priority.

The controlling shareholder has sufficient projects, and business development results have been remarkable. The controlling shareholder of the company is Guangzhou Metro Group, which is one of the comprehensive rail transit enterprises with the most complete industrial chain in China. It is mainly responsible for the investment and financing, engineering construction, operation management and development and operation of real estate, commerce, etc. of Guangzhou urban rail transit. The total rail transit mileage operated by the end of 2020 will reach 676.5 kilometers. The construction of 11 new subway lines (segments) and 292 kilometers is being promoted simultaneously, and is responsible for the investment and construction of 27 China Railway, intercity, integrated transportation hubs and municipal road projects. As a high-quality urban rail design unit under the Group, the company is responsible for the investment and construction of 27 China Railway, intercity, integrated transportation hubs and municipal road projects. As a high-quality urban rail design unit under the Group, the company is responsible for the investment and construction of project resources. It has a clear advantage. The company takes rail transit as the core, expands business dimensions horizontally, actively participates in complex development projects with rail transit stations as the core, expands its business to various fields such as construction and municipal design, undertakes multiple projects, extends the length of the business chain, lays out general contracting for civil defense projects, continues to build new business growth points, and its comprehensive strength continues to improve.

Investment suggestions: The company is a high-quality leader in the field of urban rail transit design. It has the highest qualifications in the survey and design industry, has sufficient experience in major and complex projects, remarkable technical competitiveness, sufficient controlling shareholder projects, significant resource channel advantages for the company's projects, sufficient in-hand orders, strong performance certainty, profitability and per capita revenue generation are higher than the overall level of design companies. The horizontal construction and municipal business expansion is effective. The future will benefit from the release of demand in the national rail transit market. Market share is expected to continue to increase. We are optimistic that the company will achieve future growth space in 2021-2023 RMB 2,165 million, RMB 2,498 million and RMB 2,871 million, up 15.7%, 15.0%, respectively; realized net profit of 330 million yuan, 378 million yuan and 428 million yuan, up 15.1%, 14.6% and 13.3%, respectively; EPS was 0.82 yuan, 0.94 yuan and 1.07 yuan respectively; dynamic PE was 24.6 times, 21.5 times and 18.9 times respectively, and PB was 3.8 times, 3.2 times, 2.7 times, respectively, covering for the first time With the “Buy-A” rating, the target price is 26.4 yuan.

Risk warning: large macroeconomic fluctuations; epidemic control falls short of expectations; policy progress falls short of expectations; fixed investment declines; loss of personnel; increased risk of industry competition, etc.