Incident: The company released its 2018 annual report. It achieved revenue of 3,032 million yuan during the reporting period, an increase of 20.70%; the net profit of the mother was 378 million yuan, an increase of 40.15% over the previous year, and net profit after deducting non-recurring profit and loss was 314 million yuan, an increase of 34.33% over the previous year; the company distributed a cash dividend of 3.26 yuan (tax included) per share to all shareholders using the capital reserve fund to transfer 4.5 shares to all shareholders for every 10 shares.
Smart policing and public data businesses have blossomed in many places, focusing on industry awareness business: during the reporting period, the company's three main business product sales, system integration and software revenue achieved revenue of 1,535 million yuan, 540 million yuan, and 139 million yuan respectively, up 66.49%, -22.38% and 22.17% over the previous year. In 2018, the company used its extensive nationwide sales network to seize market opportunities such as smart policing and public data to achieve continuous business growth in Shanghai, Sichuan and other places, and successfully launched and deployed many projects. On the other hand, the company responded positively to the public security big data strategy, based on the actual needs of public security in the digital economy era, vigorously developed smart policing services based on public security data, and synthesized command products won bids for security projects in many places; the Human Network platform was also deployed in more than 30 local and municipal public security bureaus. In order to focus on the industry's perception of business development, the company liquidated and disposed of some travel agency businesses that had been in a state of loss for a long time during the reporting period, retaining only the three profitable and mature Beihai-Weizhou Island, Beihai-Haikou, and Penglai-Changdao routes, thus generating 55.83 million yuan in disposal revenue.
R&D investment continues to increase to strengthen technological capability innovation: During the reporting period, the company's management expenses were 291 million yuan, an increase of 23.87% over the previous year. In addition to this, the company's R&D expenses in 2018 totaled 194 million yuan, an increase of 69.61% over the previous year; the share of R&D expenses in sales revenue increased from 4.7% in 2017 to 8.5%, mainly because the company continued to consolidate its core technical capabilities and strengthen the layout of components such as data governance and intelligent modeling. In the reporting period, the company obtained 9 new invention patents and 21 software copyrights.
The smart security market is developing rapidly, and the digital economy is advancing comprehensively: the smart placement market will continue to grow at a high level in 2019. With the development of artificial intelligence, intelligence will become a major trend in the overall security industry, and intelligent security will also gradually become the direction of transformation and upgrading of security enterprises. It will account more and more in the industry, and the market prospects are broad. Furthermore, public security big data strategies have received great attention from local public security authorities, and the continuous development of market demand has opened up more room for growth in the company's smart policing business. On the other hand, traditional industries are deeply integrated with technologies such as cloud computing, big data, and artificial intelligence, and supply-side structural reforms are taking place, which in turn has become a strong driving force for China's economic development. Relying on its own accumulated digital transformation methodology, the company seizes market opportunities by providing industry perception solutions for customers' digital transformation and upgrading. Continuously strengthened core technology is expected to become an important force for the company to achieve further development in this field in the future.
Investment suggestions: The company's strategy focuses on “leading industry transformation with digital drivers”; the public data strategy has become a “leading project”. The company focuses on smart public security, and has achieved major breakthroughs in many projects with smart policing products based on big data. The company's 2019-2020 EPS is expected to be 1.33 and 1.59 yuan respectively, maintaining the “Buy-A” rating, with a target price of 30 yuan for 6 months.
Risk warning: cognitive solutions progress less than expected; industry competition heightens risks