Incident Company released its 2018 performance report. 2018 revenue was 4.766 billion yuan, up 59.41% year on year, and net profit was 155 million yuan, up 51.44% year on year. Brief review The company's revenue growth is mainly due to: 1) the rapid expansion of smart city business, sales of IoT solutions in Shanghai, Yan'an, Beijing and other cities; 2) the increase brought about by the merger of Longshang Technology and Silicon Communications. Leveraging innovative business models to leverage rapid deployment in the field of smart cities. The company and Ningbo Hengzhixin jointly funded the establishment of Shenzhen Rihai Smart City Technology Co., Ltd., which is mainly used to expand smart city business. The conditions for gambling are: revenue for 2019-2020 is not less than 2.6 billion yuan and 3.8 billion yuan, and net profit is not less than 67 million yuan and 99 million yuan. After the performance commitment period ends, when the subsidiary assesses the performance achievement rate, net profit margin, and payback of accounts receivable, etc. as agreed by both parties, the company will acquire all of the shares in Nikkai Smart City newly held by Ningbo Hengzhi. With this model, the company's investment is small, but it can greatly integrate resources from various sources and promote the implementation of the company's smart city business. From modules to solutions to the cloud, strengthen the industrial chain and build barriers to the company's competition. 1) Competition in the module industry is fierce, and gross margin is under pressure. The ability to control costs has become the key to market competitiveness. The company integrates Xinxuntong and Longshang businesses, uses large-scale advantages to integrate supply management, and at the same time strengthens technology research and development to effectively reduce costs, thereby enhancing the company's competitiveness within the industry. 2) The core of IoT is the application. The company uses smart cities as a foothold to expand various IoT applications and catalyze the gradual maturity of IoT solutions. 3) Continuous cloud business layout, card data entry, and grasp the Internet of Things context. Investment advice: Smart city business is expanding rapidly, leading to short-term profit growth. The layout of the entire industry chain, from modules to solutions to the cloud, builds core competitiveness. The company grasps the characteristics of the IoT industry, has strong business integration capabilities, and has the best layout. It is estimated that the net profit of the mother in 2019-2020 will be 220 million yuan and 280 million, and the corresponding PE will be 35X and 28X. Give it an “Overweight” rating. Risk warning: Smart city business expansion falls short of expectations