Incident: The company released its 2019 semi-annual report. 2019H1 achieved operating income of 901 million yuan, an increase of 66.87% year on year; net profit to mother was 60 million yuan, an increase of 350.88% year on year. Comment: (1) The performance was in line with expectations, and communication services such as antennas and filters were rapidly expanded. Earlier, in the 2019 quarterly report announcement, the company expected semi-annual results of 0.54 to 67 million yuan, an increase of 300-400% over the previous year; the actual net profit to mother in this interim report was 60 million yuan, which is in line with expectations. The rapid growth in performance is mainly due to the rapid expansion of communication services such as antennas and filters. From a product perspective, 2019 H1 antenna product revenue was 287 million yuan, up 141.34% year on year; metal RF device product revenue was 259 million yuan, up 141.65% year on year; ceramic radio frequency device revenue was 3.09 million yuan, a new addition in 2019; and precision metal structural parts product revenue was 73 million yuan, up 87.56% year on year. Operating cash flow has improved dramatically, which is conducive to further supporting the development of the communications business in the future. The net cash flow from 2019H1 operating activities was 100 million yuan, a significant increase of 166.53% over the previous year. (2) 5G is progressing smoothly, and there are many business highlights: a) The overall gross margin has increased, and the increase in antenna products is the most obvious. Q2 gross margin reached 22.7%, up 8.12% year on year and 6.41% month on month. By product, the biggest increase in gross margin was for antenna products (gross profit margin of 29.28%, up 10.97% year on year). The increase in gross margin is expected mainly due to the start of new 5G products, which raised the overall gross margin level. b) Entering Ericsson's supplier system. The company successfully entered the Ericsson supplier system in 2019H1 and began small-batch delivery. As a result, the company has established a customer system with two major equipment vendors, ZTE and Ericsson, and is expected to fully enjoy the dividends of the 5G era of active antennas integrated by equipment vendors. c) The layout of ceramic RF devices has been perfected and delivery has begun. In the 5G era, RF devices such as filters will gradually shift to a product trend based on ceramic materials. On January 29, 2019, the company acquired 51% of the shares of Jiefeng Electronics in cash to complete the layout of RF devices such as ceramic waveguide filters. d) Overseas market layout has successfully begun to harvest. The company established its subsidiary Dengyo USA in the US in 2018 and received its first order at the end of 2018. In the future, the company will use the Dengyo USA platform to vigorously explore the North American market. As of the 2019 semi-annual report, the company's foreign revenue was 194 million yuan, an increase of 27.79% over the previous year. (3) New product expansion continues, and subsequent growth is guaranteed. The company's production capacity expansion project is mainly a Beaufort Communications base station RF system expansion project. As of the company's semi-annual report, the project investment progress was 50.43%. With the gradual implementation of subsequent capacity expansion, the company's subsequent growth is guaranteed. Investment advice: The company's traditional precision box business is developing steadily, and profitability is expected to be gradually optimized. It has outstanding technology and mass production capabilities for antenna and filter products. It has deep cooperation with ZTE and Nippon Electric, and is actively expanding new customers such as North America and Ericsson, with many results. At present, the company's 5G product orders have been placed. With the implementation of the 5G license, 5G network construction will gradually accelerate, which is expected to drive the company's performance to continue to grow rapidly. We continue to be optimistic about the company's layout in the radio frequency field, and believe that the company, as the main supplier, can benefit greatly from the 5G network era. The company's net profit for 19-21 is estimated to be 1.6, 230, and 270 million yuan, respectively, corresponding to 46 times in 19 and 31 times in 20, maintaining the “increase” rating. Risk warning: technology research and development risks, 5G construction progress low expectations, price competition exceeds expectations