Core opinion events: On the afternoon of August 12, 2019, the company released its 2019 semi-annual report. 2019 H1 achieved operating income of 265 million yuan, an increase of 19.38% over the same period last year; realized net profit attributable to shareholders of listed companies of 015 million yuan, an increase of 18.47% over the previous year; and net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses of 11 million yuan, an increase of 31.66% over the previous year. The company's performance is in line with expectations, and the main business is developing smoothly: In the first half of 2019, the company achieved operating income of 265 million yuan, an increase of 19.38% over the previous year, mainly due to the steady growth of the company's business in the fields of finance and safe cities, as well as a 266.10% year-on-year increase in revenue in other industries. The company's current business is mainly divided into three fields: finance, safe cities, and smart justice. Among them, the financial sector maintained steady development, revenue was 171 million yuan, up 5.83% year on year, and its share of revenue fell to 64.6% from 72.8% in the same period last year; Ping An City business also maintained steady development, achieving revenue of 44 million yuan, up 10.71% year on year, accounting for 16.5% of total revenue. There was little change from the same period last year. Revenue mainly comes from the Chongqing Yubei project signed by the company in August 2016 and 2017 11 The Beijing Tongzhou project, which was signed in January, confirmed 24.614 million yuan and 2.83 million yuan respectively in the first half of 2019. The company's overall gross margin remained stable, and the gross margin of Ping An City's operating business increased significantly: in the first half of 2019, the company's gross margin was 39.62%, which was basically the same as 38.51% in the same period last year, while the gross margin of the company's two business segments changed significantly. Among them, the gross margin of the operating business of Ping An City increased sharply, from 31.72% in the same period last year to 56.51% this year, an increase of 24.79%, while the gross margin of business in other industries declined, by 7.81%; the gross margin of the financial business remained stable. R&D investment has increased dramatically. If equity incentives are deducted, net profit growth rate for the first half of 2019 is over 70%: in terms of cost ratio, the company's sales expense ratio in the first half of 2019 was 12.83%, which is basically the same as 12.81% in the same period last year; the management expenses rate was 14.72%, up 2.40% from last year, mainly due to increases in employee remuneration, restricted stock amortization expenses, and intermediary service fees; including the increase in equity incentive costs for the first half of 2019 of 12.551 million yuan. If this part of the impact is deducted, net profit of the mother will reach 0.24 billion yuan, same This is an increase of more than 50%. In the first half of 2019, the company invested 36.7916 million yuan in R&D, a significant increase over the same period last year, an increase of 62.33%. The main reason is that the company increased R&D investment in R&D projects such as software-defined IoT application platforms, IoT intelligent management platforms (IOTMP), and IOTMP mobile terminals. The R&D cost rate was 9.06%. In addition, the company's financial expenses were -135,600 yuan, an increase of 30.60% over the same period last year. The main reason was the increase in bank loans and interest expenses in the current period compared to the same period last year. In terms of net profit, net profit for the first half of 2019 was 115 million yuan, an increase of 18.47% over the same period last year. The main reason is that revenue from financial business and Ping'an City increased compared to the same period last year, leading to an increase in net profit. Ping An City has sufficient orders, innovating the “construction+operation” business model to extend and expand the company's business life cycle: Ping An City's existing public safety video surveillance engineering service (smart skynet) and Beijing's Tongzhou District public safety video surveillance construction network application projects are also being implemented. The Yubei project has unconfirmed revenue of 118.2377 million yuan, and the Tongzhou project has unconfirmed revenue of 45.053 million yuan, and sufficient orders in hand, laying a good foundation for future Ping An City business growth. Furthermore, the company innovated the “construction+operation” business model. Taking the Chongqing Yubei project as an example, the local public security bureau must purchase big data operation services from the company, and the company charges operating expenses from it. The company plans to use this as a benchmark to expand the government side (G side) business under the operating model to commercial clients (B end) and ordinary clients (C end) within the same region, form a linkage system with government public safety data operations, and operate C-side and B-side services. Compared with the simple construction and delivery model, the operating model created by the company makes the business life cycle more scalable and more profitable. Relying on Runan Technology, every effort has been made to develop the prison, community corrections, and drug rehabilitation markets: The company's smart justice business mainly comes from its subsidiary Runan Technology. In 2019, Runan Technology received a first-level qualification certificate for electronic and intelligent engineering professional contracting, and the company's ability to provide smart justice solutions, terminal products and services for community corrections, prisons, drug rehabilitation, etc. was further improved; in addition, the company won the bid for a prison project this year, and the project progressed smoothly, demonstrating the company's competitive strength in the field of smart prisons. In January 2019, the Ministry of Justice issued “Implementation Opinions on Accelerating the Construction of “Smart Prisons”. In April of the same year, the first batch of “smart prisons” passed the review and acceptance. With the comprehensive progress of various tasks, the market prospects for the judicial sector are promising. There are 713 prisons across the country. According to the current situation, the budget for each prison platform is about 30 million yuan, and the market size can reach about 21.4 billion yuan. The total number of detention centers and drug rehabilitation centers is over 3,000. Based on the investment of about 8 million dollars each, there is also a market space of nearly 24 billion dollars. In terms of social correction, there are about 800,000 social corrections personnel nationwide. If the operating model of Shenzhen Smart Social Corrections is followed, it is estimated that operating service revenue will reach more than 1 billion yuan a year, and the market space is considerable. Investment advice: The company's current main business focuses on the three areas of financial IoT, smart justice, and safe cities. The company first started with the Financial Internet of Things. Currently, there are more than 1,000 bank network monitoring centers built and under construction, and in February 2019, it was also shortlisted as a supplier of two intelligent monitoring equipment from the Bank of China and 12 technical defense equipment series products from Minsheng Bank. Development is progressing steadily; in the field of smart justice, the introduction of a number of policies is conducive to the comprehensive advancement of smart justice work, and the market space is considerable. As a nationalized provider of smart justice solutions, Runan Technology, the company's holding subsidiary, has a significant lead in the accumulation of technology, products, and market development, and business development is worth looking forward to; In terms of public safety, the company has sufficient orders and innovated business models to extend the business life cycle and expand into the B-side and C-side markets. Currently, the “smart justice+public safety” business has entered a period of explosion. The company has implemented benchmark projects in various fields one after another. In the future, demonstration effects will gradually become apparent, driving the company's long-term performance growth. The company is expected to achieve operating income of 1,022 million yuan, 1,388 million yuan and 1,876 billion yuan respectively in 2019-2021, net profit of 191 million yuan, 230 million yuan and 302 million yuan, EPS of 0.28 yuan, 0.33 yuan and 0.44 yuan respectively, and corresponding PE of 22X, 18X and 14X, maintaining a “highly recommended” rating. Risk warning: The process of building informatization in the administration of justice falls short of expectations; Runan Technology's offsite business expansion falls short of expectations; and competition in financial security has intensified.