Key investment events: 263 released its quarterly report. The company's revenue for the first quarter was 262 million yuan, up 31.0% year on year; net profit was 36.925 million, up nearly 1.7 times year on year; after deduction of 34.688 million, up 2.1 times year on year, performance exceeded expectations. In addition, the company also expects to achieve net profit of 64,131 to 76,156 million yuan in the first half of 2019, an increase of 60% to 90% over the previous year. Since entering 2019, the company's revenue has increased steadily, while net profit growth has accelerated markedly, mainly due to the increase in the one-time service revenue of ○1 Shanghai Naisheng IDC; ○2 the company merged into Nisheng Technology and I-Access international private network business in 2019; ○3 the original self-developed software confirmed during the merger and acquisition of Zidong Technology was amortized in 2018; and ○4 the parent company confirmed deferred income tax assets of 9.734 million yuan based on future profit forecasts. The two major pain points of video conferencing call for technological innovation. Enterprise unified communication from voice to video is an inevitable trend in the future. However, the current development of video conferencing still faces two major “stumbling blocks”: 1. Due to network bandwidth conditions, unclear images, interrupted calls, and poor communication experience; 2. Existing unified communication hardware manufacturers have limited support for cross-platform connections of different brands and types of terminals to protect their own interests, and there are barriers to interconnection, making it impossible to achieve efficient communication. 5G+ cloud computing cuts to the point, removing barriers to video conferencing. The development of 5G has greatly improved core indicators such as bandwidth, latency, reliability, and number of connections of mobile networks. At the same time, the collaborative and competitive relationship between mobile fixed networks will also promote the continuous optimization and improvement of fixed network broadband. Perfect technical conditions will strongly support video communication anytime, anywhere, and will significantly improve the effectiveness of video conferencing. Therefore, 5G will directly hit the first pain point of video conferencing and create a video era. Video cloud platforms built on cloud computing technology will no longer be limited by regions and brands. Video Cloud has superior compatibility, can use open protocols to achieve the interconnection of almost all brand terminals, and can rely on the powerful computing power of the cloud to contribute to video transmission, optimization, and codec, effectively lowering the local hardware threshold and improving the quality of experience. The future video cloud is expected to lead video communication towards a unified era of integrated video communication. 263 Aimed at “Video +” and built “Zoom” in China. ○1,263 is one of the top five enterprise email service providers in China, providing enterprise email services for 130,000+ enterprises and 6 million+ enterprise users, laying a solid user base. ○2 263 On the one hand, it revolves around the video cloud to achieve extensive interconnection between devices of different brands, and on the other hand, it efficiently integrates 263 teleconferencing, webcasting and other services to create “video +”. ○3 263 Zhanshi Interactive ranked first in live streaming for domestic enterprises. It serves more than 1,000 large and medium-sized enterprises and well-known education and training institutions around the world, and has good brand appeal. In the future, 263 will actively create video+live broadcasts, increase the layout of the education industry, and achieve expansion and collaboration in advantageous industries. Capital Online and Zhiyuan Internet plan to go public, and 263 equity investment is expected to increase their performance significantly. According to the 263 announcement: ① IDC service provider Capital's online application for GEM listing has been accepted. If the listing is successful, the value added of 263 shares is expected to reach 60 million yuan. ② Zhiyuan Internet, a leading collaborative management software company, was also accepted for listing on the Science and Technology Innovation Board. After the successful listing, the 263 equity value could reach 130 million yuan. Profit forecast and valuation: The forecast for net profit of 263 million in 2019-2021 is 163 million, 212 million, and 277 million, corresponding to the current market value (April 23, 2019). PE is 43 times, 33 times, and 25 times, maintaining a “prudent increase in holdings” rating. Risk warning: 1. The entry of Internet giants into video cloud communications has led to a sharp increase in competitive pressure in the industry; 2. The scale of goodwill is large, and poor management of some subsidiaries has led to impairment of goodwill; 3. Domestic operators have strengthened their internationalization strategies, causing pressure on international dedicated line business.