The company released its annual report for 2018, with operating income of 952 million yuan, an increase of 114.78% over the same period last year, and net profit of 117 million yuan, an increase of 141.29% over the same period last year.

PDA and intelligent POS machine business have achieved rapid growth. In terms of product income, the operating income of intelligent mobile data terminal (PDA) reached 478 million yuan, an increase of 78.73% over the same period last year, mainly due to the strong demand for logistics and express delivery and the expansion of finance, transportation, manufacturing, health care and other industries. Intelligent mobile payment terminals (intelligent POS machines) achieved business income of 405 million yuan, an increase of 183.98% over the same period last year, mainly because the company continued to maintain good cooperation with mainstream third-party payment platforms, won bids from a number of large state-owned banks, and the company's intelligent POS products achieved breakthroughs in overseas markets such as India. The company adopted a targeted market strategy to achieve rapid sales growth in overseas markets, an increase of 361.33% over the same period last year, mainly in India, Southeast Asia, Europe, Russia and South America.

The scale effect is reflected, and the expense rate decreases. In 2018, the company's comprehensive gross profit margin was 33.30%, down 4.16 percentage points from the same period last year, mainly because the gross profit margin of PDA products decreased, while the gross profit margin of smart POS products remained stable. The company's sales expense rate was 6.29% in 2018, down 1.94% from the same period last year. The company's management expense rate was 11.38% in 2018, down 6.14% from the same period last year. The company's income is growing rapidly, the expense rate is declining, and the scale effect is beginning to be reflected.

With the proposed merger and acquisition of Jiabo Technology, the growth path of Zebra begins to be reflected. In December 2018, the company plans to issue shares and pay cash to buy its 100% stake in Garbo Technology. The underlying assets of this transaction are initially priced at 815 million yuan. Jiabo Technology is a leading integrated service provider of special printer equipment in China. mainly engaged in label printers, bill printers, movement modules and intelligent printing terminal research and development, production, sales and services, the main products include label printers, bill printers, movement modules, intelligent printing terminals and other four series. Through this acquisition, the company is expected to produce positive synergies and is expected to replicate the growth path of overseas mobile terminal leader zebra (Zebra).

Investment suggestion: we are optimistic that the outbreak of overseas POS machine market will bring new increment to the company's business, and the strong logistics demand and PDA entering the replacement and upgrading cycle are conducive to the development of its PDA business. Regardless of the merger table of Jiabo Technology for the time being, it is estimated that the company's EPS from 2019 to 2020 will be 0.72,1.00 yuan respectively, with a "buy-A" rating and a 6-month target price of 28 yuan.

Risk Tip: overseas POS demand is lower than expected; PDA demand is lower than expected.