I. Overview of events

Recently, we participated in the company research and communicated with the company leaders on the company's development strategy and other issues.

II. Analysis and judgment

Build a platform company driven by scientific and technological innovation to achieve breakthroughs in environmental protection, new materials and other new business

The company is the first company in Shenzhen to earn more than 10 billion yuan in revenue, and the deteriorating competition situation in the TV industry has led to the stagnation of the company's growth since 2010. In 2018, the company formulated the development direction of "science and technology + industry + park", and defined the core orientation of platform companies driven by scientific and technological innovation. Environmental protection, new materials, white electricity and other businesses bloomed during the year, while a number of industrial park projects were completed. In the follow-up, the company will continue to take industrial development as the core, open up the space of the industrial plate through the development of the park, and then strengthen R & D and brand investment, make every effort to build scientific and technological competitiveness and social influence, and realize Konka's second take-off.

Overseas Chinese Town, the major shareholder, gives full support to the mixed reform to stimulate the vitality of the enterprise.

In March, the company announced a 3 billion non-public offering plan, which is intended to be used to repay bank loans and replenish working capital, and Qiaocheng Capital, owned by major shareholders, will subscribe in full. In July, the company replied to the CSRC's first feedback, and progress was relatively smooth. In recent years, the company's mixed reform has made rapid progress, and executives have been competing globally since 2016. recently, KKTV and Yi Pingfang have introduced Ali as strategic investors. Yikang, which is acquired by environmental protection, and Konka Huanjia, a joint venture, have 51% shareholdings, focusing on providing capital, risk control and management support to fully stimulate the vitality of business expansion in the new sector.

With the urban mine as the core, the solid waste industry chain is involved in all aspects, and the Lankao project is emerging.

In 2018, the company acquired 51% stake in Yikang Technology to enter the military water treatment industry, and then set up a joint venture Konka Huanjia Environmental Protection Technology Co., Ltd. to enter the field of urban mining. The partner Huanjia Group has 35 years of experience in the renewable resources industry, and has widely carried out the business layout of recycling of renewable resources such as scrap, waste non-ferrous metals, waste paper, waste plastics and so on. In May, the company announced that it signed a cooperation agreement with the people's Government of Lankao County, Henan Province to build an environmental protection business industrial base with a total investment of 1 billion yuan, including a renewable resources recovery center. The turnover of renewable resources projects is fast, and we believe that the urban mining business is expected to contribute more than 10 billion yuan in revenue to the company. At the same time, Yikang has also actively laid out the waste incineration business, the next step plans to enter the kitchen waste management plate, the company's environmental protection plate is expected to achieve rapid development.

III. Investment suggestions

We expect the solid waste and park business to be the main performance increment of the company in 2019. Assuming that the fixed increase can be landed during the year, the EPS is expected to be 0.19 shock 0.28 shock 0.39 in 2019-2021, corresponding to the current stock price PE22/15/11x. The company's current PB is only 1.3x, which is below the 10% quantile in 10 years. It is worth looking forward to future performance growth after the second transformation, covering it for the first time and giving it a "recommended" rating.

Fourth, risk tips:

1, the mixed reform is not as expected; 2, the development of urban mining business is not as expected.