Matters: The company released its 2018 annual report, achieving operating income of 765 million yuan, an increase of 34.31% over the previous year; net profit of 140 million yuan, an increase of 26.12% over the previous year; net profit after deducting 130 million yuan, an increase of 22.73% over the previous year. Comment: The performance is in line with expectations, and the smart justice and public safety business is growing at a high level. The company achieved revenue of 765 million yuan, an increase of 34.31% over the previous year. Among them, the financial Internet of Things, smart justice, and public safety businesses achieved revenue of 482 million yuan, 685.827 million yuan and 138 million yuan respectively, up 8%, 94.8%, and 226.1% year on year. The company's gross margin was 46.46%, down 2.61 percentage points year on year, mainly due to security system product gross margin; sales expenses fell 1.27 percentage points year on year, and management expenses increased 0.62 percentage points year on year, mainly due to restricted stock amortization expenses and increased employee remuneration. Overall, the company achieved net profit of 140 million yuan, an increase of 26.12% over the previous year. In addition, the company's net operating cash flow was 139 million yuan, an increase of 23.1% over the previous year, which is basically in sync with the increase in net profit. Policies drive the rise in the popularity of smart justice, and it is expected that smart justice services will continue to grow at a high rate. The Ministry of Justice clearly stated that by the end of 2019, the “digital rule of law and smart administration of justice” informatization construction goals of “big platform sharing, big system common governance, and big data wisdom” will basically be achieved. Driven by national policies, the field of smart justice is expected to usher in a boom cycle. Relying on the understanding and application of its holding subsidiary Runan Technology in prison informatization for many years, and in conjunction with the company's smart IoT management technology, the company has independently developed three core platforms: “smart prison service command platform”, “comprehensive business management platform”, and “electronic identity management platform”, which have been piloted in Shenzhen, Meizhou, Beijiang and other places. The company's smart justice business is expected to benefit from increased industry prosperity and will continue to maintain rapid growth in 2019. Smart social rehabilitation solutions have an outstanding first-mover advantage and are expected to achieve rapid breakthroughs. In November 2018, the Ministry of Justice called for effective strengthening of integrated corrections in the prison community; at the same time, the “Community Corrections Law” legislation is also progressing smoothly, and a new situation of community corrections is about to begin. The company's comprehensive solution formed by a hardware system combining a “UWB wristband+detachable mobile terminal” plus a “one cloud, two platforms” software platform program has been shown as a classic case at the National Judicial Administration Informatization Promotion Work Conference. The first-mover advantage is extremely outstanding. In 2019, the company used the integrated correctional construction of the prison community as the main driving force, which is expected to achieve a rapid breakthrough. Investment suggestions: We slightly adjusted the company's net profit forecasts for 2019-2020 to 192 million yuan and 253 million yuan (original forecasts were 188 million and 242 million yuan), and also predicted net profit for 2021 to be 311 million yuan, corresponding to PE 33 times, 25 times, and 21 times, respectively. Referring to comparable company valuations and company historical valuations, 40 times PE was given in '19, corresponding to the target price of 18.82 yuan, maintaining the “recommended” rating. Risk warning: The financial security business is declining; the construction of smart justice falls short of expectations.