In 2019, H1 Company achieved revenue of 531 million yuan, + 10.52% year-on-year, net profit of 27 million yuan,-15.57% year-on-year, and net profit of 24 million yuan, 14.98% of the same period last year. The pressure on the company's short-term performance is mainly due to the continued increase in R & D investment for long-term development, and the follow-up is still expected to benefit from trends such as lens upgrading and maintain the "overweight" rating.

Q2 high investment in R & D dragged down the company's performance, H1 net profit-16% compared with the same period last year. In the first half of 2019, the company achieved revenue of 531 million yuan, + 10.52% year-on-year, net profit of 27 million yuan,-15.57%, and non-return net profit of 24 million yuan, 14.98% of the same period last year. For a single quarter, 2019Q2's revenue was 300 million yuan, year-on-year + 6.3%, parent net profit 14 million yuan, year-on-year-42.12%; deduction of non-return net profit 13 million yuan, year-on-year-40.99%, while Q1 company revenue and performance growth rate of 16.51%, 76.81% compared with Q1 performance, which dragged down the company's overall performance in the first half of the year. Among them, the company H1 gross profit margin declined slightly from 0.4pct to 21.6% and remained stable, while H1 profit growth was much lower than that of revenue mainly due to the significant increase in R & D expenditure rate under personnel expansion (year-on-year + 2.5pcts to 10.78%, of which labor cost + 9.53 million yuan), while the overall period expense rate was only year-on-year + 1.78pcts. Among them, Q2 sales / management / R & D / financial expense rates are respectively year-on-year + 0.37/-1.89/+5.03/0.64pcts. We believe that in the context of sluggish industry demand, the company has firmly increased R & D investment since Q2 to ensure long-term development, resulting in short-term performance pressure, and the follow-up is expected to usher in improvement.

The security lens grows steadily and benefits from the ultra-high definition upgrade policy. In 2019, the overall demand for security in the downstream of H1 was weak, and the growth momentum of the company's security lens was insufficient. In the first half of the year, revenue was + 10.85% to 460 million yuan, accounting for about 87% of revenue, and the gross profit margin was basically flat from-0.06pct to 22.76%. In March 2019, the Ministry of Industry and Information Technology and other departments jointly issued the Ultra HD Video Industry Development Action Plan (2019-2022), vigorously promoting the development of China's UHD video industry, and the proportion of HD lens shipments in the security field is expected to increase rapidly. As a leading supplier of security lenses, the company has a 10.5% global market share of zoom lenses in 2018 (77.8% of the high-end security zoom market), and can achieve optical zoom ranging from analog, 720p, 1080p to 4K or even 8K resolution and 3x 55. it is expected to deeply benefit from the product upgrade trend brought about by the ultra-high-definition industrial policy.

Non-security category pays attention to laser products, off-screen fingerprints and other new products. The company's revenue of H1 non-security lens in 2019 was + 20.19% to 66 million yuan compared with the same period last year, accounting for about 12% of the revenue, while the gross profit margin was-0.26pct to 14.39%. Security Foreign Company actively distributes downstream areas such as projection video, consumption, and vehicles, and has achieved stable delivery of ultra-short focus laser lenses in 2018, and Q1 successfully mass-produced and delivered fingerprint lenses under the optical screen of mobile phones in 2019. At present, the penetration of the optical off-screen fingerprint scheme on Android is accelerating, and we expect to ship nearly 190 million Android devices in 2019, which is expected to bring considerable incremental demand for the company.

Risk factors: security industry is in the doldrums; downstream major customers are not as expected; non-security market development is not as expected.

Investment advice: due to the weak demand for short-term downstream security, the superimposed company adjusts its investment strategy. Based on the downgrade of the company's EPS forecast for 2019-2021, we maintain the "overweight" rating of 0.35xpx 0.43x0.51 yuan (the original forecast is 0.42 mop 0.56 pm, and 0.68 qpx 1.06 yuan before the corresponding increase in equity).