https://stock.stcn.com/djjd/202104/t20210428_3151717.html

On April 26, Traffic Control Technology Holding Co., Ltd (“TCT”, 688105.sh) held the illustration meeting on its performance in 2020 successfully; Gao Chunhai, the president of TCT presented along with other senior managerial personnel of the company ceremoniously; this meeting has responded some hot issues taken care by the investors, such as market share, on-hand orders, plan of international market exploitation, development planning in the future, the progression of private equity investment project as well as the progression of technical research and development, etc.

The financial statement shows that, TCT has realized the operation revenue of 2.026 billion Yuan in 2020 with the year-on-year growth rate of 22.67%;the sum of net profit of parent company was 237 million Yuan with the year-on-year growth rate of 86.03%; the basic benefit per share was 1.48 Yuan/share and the year-on-year growth rate was 59.14%. The company planned to distribute the cash dividend to all shareholders for 4.5 RMB Yuan per 10 shares (tax-inclusive), and the total sum of cash dividend will be 72 million Yuan (tax-inclusive). TCT continued to reward the investors with excellent performance and large sum of dividend in the second year of listing.

Both turnover and net profit increased and the performance progressed stably.

Centering around independently researched and developed CBTC technology, TCT has been engaging a series of businesses, such as R&D of urban rail transit signal system, research and manufacture of critical equipment, system integration and general contracting of signal system, maintenance and repair service as well as other technical services.

The signal system is the indispensable and core system for the operation of rail transit, and its purpose is to warrant the high-effective and safe train operation. As is the same as the control system of nuclear power station, the signal system must reach the top security level. This technology had been monopolied by foreign manufacturers before the emergence of TCT. By independent research and development, TCT has realized major breakthrough in the field of critical technology of signal systems of various generations, and now it has grown to a leading enterprise in the field of signal system of urban rail transit in China.

The project delivery of the company lead in the industry in 2020, and the company also realized the stable performance increment. In terms of the business composition, the business of general contracting of signal system is the most important source of income and profit of the company; the turnover in 2020 was 1.852 billion Yuan and the year-on-year growth rate was 18.16%. The proportion of the turnover in the total income was 91.39%. There are also some small-scale sales and maintenance services which also compose the integrate service system.

After CBTC system was issued, the company has issued more advanced I-CBTC system and FAO system, and they compose three major core technologies of the business of signal system of the company; such technologies have been applied in many rail transit scenarios, such as urban rail transit, interurban rail transit and heavy haul railway.

Currently I-CBTC still dominate the delivered projects, and it contributed the income of 1.176 billion Yuan in 2020, of which the proportion in the total income was over 50%. Along with the rapid upgrading of products and technologies,the signal system of rail transit is turning to FAO system gradually; the sales amount of FAO system increased a lot during the report period and its turnover exceeded 400 million Yuan with the year-on-year growth of 213.31%. As the product of the fourth generation, though FAO system has a small proportion in the current turnover structure of the company, it still has a good expectation of growth under the background of gradual expansion of lines using FAO system in China. Up to the end of 2020, the company has won the bidding in 12 lines of FAO system, and their total operation length is 357 km; its performance on FAO ranks the firs in the industry.

The scale effect occurs along with the increment of business volume, and the comprehensive gross profit rate increases rapidly; in 2020 the gross profit rate of sales reached 32.34%, which increased for 5.68 percents comparing with the previous year. At the same time, the company gradually enlarged the application range of its proprietary products, and the core sub-system products of partial signal system were produced by the company instead of being outsourced; the delicacy management was practiced continually and the expense ratio began to decrease during this period, therefore the general profitability also increased.

The company realized the net profit of 240 million Yuan in 2020, in which the sum of net profit without non-recurring profit and loss was 205 million with the year-on-year growth rate of over 100%; the weighted average net return on assets was 20.09%, which increased 1.58 than that in the last year. Along with the increment of the proportion of proprietary products as well as the continual optimization of management level, the profitability can still be increased a lot.

When the businesses of the company are continually expanding, the cash inflow and outflow of the company for operation also increased obviously, and the net sum of cash flow was very stable. In order to prepare for delivery in the next year, the company actively purchased and prepared goods; the net sum of cash flow generated in the operation in 2020 was 348 million Yuan and it decreased a bit comparing with the previous year. However, the money income ratio and net present value rate were 1.23 and 1.45 respectively, and such figures are very high in the recent years; the capability of self-recovery of the company is still very strong. Therefore, the liquidity of the company is still very good; the sum of monetary fund exceeded for 1.4 billion Yuan and the sum of liability with interest was even lower than one tenth of the former.

According to the report of Q1 in 2021, TCT has realized the turnover of 364 million Yuan during the period of report and the year-on-year growth rate was 33.17%; the net profit of parent company was 24.5761 million Yuan with the year-on-year growth rate of 7.21%. Affected by the seasonal arrangement of overall subway construction and industrial practices, the project of signal system engineering has the obvious seasonal features; the performance in the first half of the year, especially Q1 is very low in the entire year, and it is estimated that the sales amount of the company will continually increase in the future.

The independent and controllable R&D and innovation make the company lead in the industry

The rapid increment of performance is one of the highlights of the annual report of CTC, and this excellent performance is closely related to the fact that the company pays high attention to R&D and innovation. The company has been practicing the mode of collaborative innovation initiated by industry, college and institute; the company has established an innovation team leading in the industry and has also tackled a series of problems on core technology. Gao Chunhai, the president expressed that, the company can own right of speech and serve the country only be independent innovation.

The company still kept large investment on R&D in 2020, the sum of investment was 173 million Yuan and it increased for 53.09% than that in last year; all of the investment had been converted into expenses. The proportion of investment on R&D in the turnover was 8.55% with the year-on-year growth rate of 1.7 percents.

There were also abundant R&D achievements; the company has applied for 281 patents and authorized 149 patents, among which 133 patents were authorized in China and 16 patents were authorized abroad. It has also undertaken 2 national-level scientific research projects (issued by National Development and Research Commission and the Ministry of Science Technology), participated in the enactment of 8 industrial standards and regulations and 2 local standards and regulations, and issued 3 industrial white papers.

Besides, the project of the company “the national engineering laboratory on the train communication and operation control for urban rail transit” , which was approved by National Development and Research Commission, has passed the acceptance and checking and obtained high remarks from experts. The company was certified as “the national demonstrative enterprise on technical innovation” by National Ministry of Industry and Information, and its capability of scientific and technological innovation was confirmed again.

Innovation is the primary driving force leading development, and the talent is the most important resource to support innovative development. The company owns an R&D team specialized in signal system, security and protection, automation and other fields. Up to the end of December, 2020,the company had 416 R&D persons, which took up for over 20% of total staffs; nearly all of them have solid foundation of specialty and technology, as well as abundant experiences on product development.

The company practiced stock ownership incentive in June, 2020, and 1.6649 million restricted shares were sold to 21 senior managers and core technician persons with the price of 16.18 Yuan per share; the strict indexes on performance assessment was also set to encourage the staffs to contribute their strength for the development of the company continually.

The company has been insisting the routine of innovation of “applying one generation, developing the next generation and research the third generation” for long time; the company is researching and developing the system of new generation on the basis of nation-level researching platform and advancing in the direction of international frontier technology. The VBTC product of the company obtained the independent third-party security certification in 2020, and the engineering-orientation spot test is about to begin; the industrial transformation will be realized in future.

Gao Chunhai, the president thought that, the largest advantage of TCT is to insist innovation, and there will be no expectation for the enterprise without innovation. The company will make breakthrough and utilize new technology to provide the users with internationally leading full-automatic operation system and intelligent rail transit control system. At the same time, the company participates in the construction of Belt and Road actively, it is also expanding its international business and increasing the international comprehensive competitiveness continually.

The demand is growing and the on-hand orders are affluent

In the recent years, the nation is paying high attention to the construction of urban rail transit, and has released many policies to promote the development of urban rail transit. “Interurban high-speed railway and urban rail transit” is one of the seven major fields of new infrastructure construction. The Fourteenth Five-year Plan and 2035 Vision released in 2021 specially raised to construct the country with powerful transport.

After the rapid development for many years, the urban rail transit in China has possessed good foundation. The development goal in future will be network operation, construction of one-hour metropolitan area and incorporation of four networks; the integrate urban rail transit network within and among the cities will be formed and it will bring a new opportunity for the increment of the entire market of urban rail transit equipment. The market will be expanded in the following four aspects:

Newly-built line: National Development and Reform Commission has approved the construction plan in 44 cities by the end of 2020 and the total investment sum has reached 4.16 trillions Yuan. According to the statistics data of China Urban Rail Transit Association, the total operation mileage of newly-added urban rail transit in 2020 was 1241.99 km. It is estimated that the operating mileage of urban rail transit will exceed 1000 km in more than 15 cities, and the total operating mileage of urban rail transit in China will reach more than 36000 km by 2035.

Line deformation: There will be 85 lines of rail transit in China demanding the deformation of signal system in the next ten years, and the total length of such lines is about 2500km; the deformation of current lines will cause the demand of updating large amount of new products and system integration technology. According to the instruction of Gao Chunhai, the president, the production value of deformation market will reach 44 billion Yuan in the future.

Heavy haul railway: The heavy haul railways in China are about to be overhaul, and there is a large demand on upgrading and deformation; the market value is about 21.465 billion Yuan.

Interurban railway: In the next ten years, the interurban railways of 2000 km will be constructed and the scale of investment on the national interurban railway will exceed 100 million Yuan.

The industry has a wide space for development under such situation. As the leader and promoter of the signal system of urban rail transit, TCT now is facing a very good opportunity of development. In terms of previous market expansion, the company has been confirmed by the customer in the aspects of technical advantage and product quality, etc and its order amount and market share ranked the first in 2018-2019.

The number of new construction projects reduced in 2020 under the effect of pandemic situation and the final year of the Thirteenth Five-year Plan; there were 21 lines of urban rail transit in China for opening bid invitation (including newly-built lines and deformed lines, and excluding the extensive existing lines), the company won the bidding in 6 new lines, and expanded its market in two new cities; the market share of the company ranked the second in the industry. The sum of new bidding was 2.316 billion Yuan, in which the total sum of new contracts on the project of signal system engineering was 1.767 billion Yuan; the businesses of the company have covered most regions and cities in China.

Currently the company has affluent on-hand orders with the projects of which the bid won previously. According to Qin Hongquan, the financial supervisor, the total sum of on-hand orders of the company is about 6 billion RMB Yuan up to the end of 2020. The projects in progress of the company include many newly-built lines and extensive lines in many cities, such as Tianjin, Shenyang, Hefei, Suzhou, Shenzhen, Zhengzhou, Chongqing, Suning and Baotou, etc; large sum of reserved projects can support the stable increment of turnover and performances of the company consistently.

The directional additional issuing can assist the long-term development of the enterprise.

Gao Chunhai is very confident when talking about the future; he expressed that TCT will promote the conversion of rail transit control system from catching up, developing simultaneously to “surpassing” on the basis of the tendency of national policies in the next 5 - 10 years, and the company will be leading in the world gradually. At the same time, in order to develop and win the market, the company must resolve the troublesome problems in the industry

Now the company is promoting directional additional issuing actively and plans to raise the fund of no more than 760 million Yuan; such fund will be invested into three project: the construction of virtual formation operation system, the construction of twin system for rail transit and the construction of intelligent maintenance and repair environment system of customer experience orientation. The sum of total investment is nearly 1.1 billion Yuan, and the company will raise fund by itself for insufficient section.

Among them, the sum of investment on the project of the construction of virtual formation operation system is about 582 million Yuan; the technology of intelligent train dispatching and commanding based on accurate passenger flow prediction and the technology of virtually flexible formation based on group intelligence will be used to research and manufacture the independent rail transit control system of new generation; such system will be leading in the world and formulate the demonstration of industrial application. When the project has been constructed, on one hand, the technical content and competitiveness of the company in the field of rail transit system will be promoted; on the other hand, the implementation of the project will also fill in the gap of relevant technology in domestic and foreign fields, and resolve the problems on system of urban rail transit in China.

The investment for the project of construction of twin system for rail transit is 338 million Yuan; the dynamic and auxiliary decision-making will be performed for the operation and dispatching personnel by the ways of modelling and simulation of high fidelity, virtuality-reality mapping and effective management of the data in full life cycle; When the project is constructed, the company will own the capability of R&D, test and verification of the new products of panorama twin system in the field of urban transit, and formulate the independently developed intelligent system and products with advanced technical level in the industry, and the capability of rapid realization of intelligent urban rail transit technology of the company will be increased in a further step.

The investment for the project of construction intelligent maintenance and repair environment system of customer experience orientation is about 178 million Yuan and the online operation and maintenance service center, the general national warehouse of spare parts and components and spot experience center will be constructed; it will provide general services of “training + spare parts and components + maintenance and repair” to subway operation companies in many regions to assist them to reduce the operation cost and transform the original operation and management mode, and this deal is helpful for increasing customer stickiness.

It is known that this directional additional issuing has been approved by Shanghai Securities Exchange with its official documents, and it still needs the registration and consent from China Securities Regulatory Commission, and the registration is in process now.

This three projects can resolve the existing troublesome problems, such as high operation and maintenance cost, passive operation and maintenance and abnormality in processing auxiliary decisions, etc, and they are also the main domain of R&D of TCT in future. At the same time, TCT hopes that the rail transit signal system in China can guide the direction of international technological development in the aspects of intelligence by the advanced innovation and layout in such aspects, and it can also provide the people with better travel experiences.