The number of global IoT connections is growing rapidly, and the company is in the lead in module shipments. The increase in smart penetration has led to the rapid growth of global consumption IoT and industrial IoT connections, and the trend of "connection of everything" in the 5G era will accelerate. According to TechnoSystems's forecast, global cellular module shipments will grow at a compound annual growth rate of 15% from 2019 to 2022. The company acquires Longshang Technology and Xuntong, establishing a leading position in global module shipments, which is conducive to mastering the flow entrance in the Internet of things era, ploughing the stock market, and sharing the incremental market. On the other hand, with the help of cloud modules to help customers "click on the cloud", edge computing terminals give end-to-side intelligence, AIoT is beginning to take shape.

To create an enabling cloud platform, connect to the Internet first and then add value. The platform layer and application layer of the Internet of things have high market value, and the giants are racing around the land one after another. The company teamed up with IoT to set up the Rihai Ella card platform, PaaS to solve user development problems, SaaS to solve small B empowerment problems, the Internet of things as a whole has strong ability to solve. Through the comprehensive layout of end, cloud and usage, the company will open up a variety of profit models of 2B, 2C, 2T and 2G, and quickly accumulate the number of connections, which is expected to become the basis of subsequent value-added. With the continuous decline of policy dividends, China's smart city projects have blossomed at many points, and the company's strategic cooperation between the three major operators and Ping An Insurance, as enabling enterprises, to share the market and channels, and the frequent landing of Wisdom projects, smart integration and smart terminal business is expected to grow at a high speed in 2019.

Facing the 5G layout, there is still something to be done for the "Old Rihai" business. The company has a leading domestic market share of communication equipment products and maintains a long-term cooperative relationship with operators and equipment manufacturers. Facing the 5G era, the company streamlined its product structure, stripped off its loss-making business, improved its profitability, accelerated the intelligent upgrading of communication equipment products, and raised its gross profit margin by 2.29pct in 2018 compared with the same period last year. At the same time, the company participates in Bai Cai Bang's strategic layout of small base stations and has a large market space in the future. 2019 into the first year of 5G, operators' capital expenditure hit bottom and rebound will lead to a pick-up in the communication network technology service market. Rihai Tongfu has a leading position in China, and has recently won bids for major general service projects such as Guangdong Unicom, Chongqing Unicom and China Mobile Limited, maintaining a leading position in comprehensive service capacity.

Investment advice. The company adopts enabling positioning to quickly open up the number of connections. In 2019, the revenue from intelligent terminals and solutions of the Internet of things increased rapidly. We estimate that the company's revenue from 2019 to 2021 will be 67.47 shock 85.67 / 10.564 billion yuan respectively, and the return net profit will be 2.17pm 2.98pm 415 million yuan respectively. For the time being, the fixed increment dilution will not be taken into account, and the corresponding EPS will be 0.69Universe 1.33 yuan respectively. The current price-to-earnings ratio is 28-20-14. The average price-to-earnings ratio of A-share Internet of things comparable company is 33 times. We believe that the cloud management layout of the company is beginning to show results. It is the only A-share manufacturer capable of providing a complete multi-scenario Internet of things solution. The reasonable price-to-earnings ratio for 2019 is 31-33 times, corresponding to the target price of 21.39-22.77. For the first time, the company was given an "overweight" rating.

Risk hint. Operators' capital expenditure is lower than expected, the development of value-added services on the Internet of things platform is less than expected, the hidden danger of high asset-liability ratio in anti-risk ability, and the gross profit margin of Internet of things business continues to decline.