Event: On August 27, the company announced its 2019 semi-annual report, with 2019H1 revenue of 1,312 billion yuan (+2.05%), net profit of 208 million yuan (+24.34%), gross profit margin of 40.19% (-3.50pcts), and net profit margin of 27.59% (+7.55pcts). Key investment points The company's revenue has maintained steady growth, and operating costs have risen rapidly 2019H1. Affected by the company's new domestic customers and the increase in bandwidth usage by some domestic customers, the company's operating income was 1,312 billion yuan (+2.05%), maintaining steady growth. Among them, the company's main business, satellite space segment operation and related application service business, achieved revenue of 1,265 billion yuan (+2.13%), accounting for 96.34% of the company's total revenue, which is the company's main source of revenue. The company's net profit for 2019H1 was 208 million yuan (+24.34%), which maintained a faster growth compared to operating income. We believe that the main reason is that the 2018 H1 company calculated the impact of asset impairment losses (122 million yuan) due to the failure of APSAT6. The operating cost of 2019H1 was 785 million yuan (+8.39%), and the growth rate exceeded the growth rate of operating income, leading to a decline in the company's gross profit margin (40.19%, -3.50pcts). The main reason for this was the impact of the increase in cumulative depreciation, monitoring and control costs, and operating expenses of the two satellites newly launched by the company in 2018, the Asia-Pacific 5C and Asia Pacific 6C satellites in this period. At the same time, the growth rate of the company's three fees was large, all exceeding the growth rate of operating income. The main reason for the increase in sales expenses (225 million yuan, +24.15%) was the increase in sales expenses (0.89 million yuan, +16.29%); the main reason for the increase in management expenses (89 million yuan, +16.29%) was the increase in labor costs due to increased personnel in business development, while depreciation, office expenses, etc.; and the increase in financial expenses (-0.07 billion yuan, +81.70%) was mainly due to a decrease in interest income. At the same time, interest expenses were no longer capitalized. In addition, due to the fact that some of the current contracts have not reached the collection period, the company's accounts receivable balance at the end of the reporting period (620 million yuan, +111.10%) increased significantly from the end of the previous period, and the cash flow from operating activities (648 million yuan, -20.97%) declined. Since most of the company's customers are government agencies or large enterprises, we expect that the company's accounts receivable balance and operating activity cash flow will improve until the future contract collection period. Aerospace Science and Technology Corporation Holdings, the world's sixth largest fixed communication satellite operator company, as a core enterprise in the satellite operation service industry under China Aerospace Science and Technology Corporation, has a national basic telecom business license and a value-added telecom business license. It is the only satellite communication operator in China that has communication satellite resources and is autonomous and controllable (Hong Kong-listed company Asia-Pacific Satellite is the company's holding subsidiary), and is listed as a national first-class emergency communications professional support team. The company's main business is satellite space segment operation and related application services, mainly used in satellite communication and broadcasting. The company provides users with radio and television, communications, video, data and other transmission services through investment, construction and operation of communication and broadcasting satellites and supporting terrestrial monitoring, control and monitoring systems. China Satellite Communications has built a complete satellite space segment operation system. 2019H1 has successfully launched and put the Zhongxing 6C satellite into operation. As of June 2019, the company operates and manages 16 commercial communication broadcasting satellites, and has transponder band resources covering the C band, Ku band, and Ka band. Satellite communication broadcasting signals cover all of China, Australia, Southeast Asia, South Asia, the Middle East, Europe, Africa and other regions. It is the second largest fixed communication satellite operator in Asia and the sixth largest in the world. In terms of satellite space segment operations, the company's domestic radio and television business and communication services have developed steadily, while actively expanding overseas markets and developing many overseas emerging market users; in terms of satellite application services, the number of users of the company's shipborne communication platform has increased steadily, and the Zhejiang Smart Marine Project has been approved, and substantial breakthroughs have been achieved in police emergency satellite communication system operation and maintenance, fire emergency and other projects; in terms of broadband application business, the number of users of the company's telecommunication grade high-throughput satellite Internet business has increased. At the same time, China's first Ka terminal enterprise standard was officially released, regulating the entry of Ka high-throughput satellites Network technical standards. Applications such as aviation satellite Internet, shipborne satellite Internet, distance education, private government and enterprise networks, 4G base station backhaul, and Internet live streaming are progressing as expected. According to data released by Euroconsult in 2018, the global satellite communication market is currently relatively stable. In 2017, the total revenue of more than 40 global fixed communication satellite operators was US$11.5 billion. The global satellite transponder rental capacity is expected to reach 969.8 GHz in 2022, an increase of 111.84% over 2017, with an average compound annual growth rate of 16.20%. We believe that in this context, the company, as the only autonomous and controllable satellite communications operator in China with communication satellite resources, has a broad market space. On August 23, 2019, the company announced that the Zhongxing-18 satellite launched on August 19 had an abnormal operation after the star and arrow were successfully separated, and troubleshooting work is currently being carried out. The company has invested 1,518 billion yuan in the Zhongxing18 satellite project, of which 1,057 million yuan plans to use this listing to raise capital. The company disclosed that the project has been underwritten by China People's Property Insurance Co., Ltd., and the insurance amount can cover the project investment amount. At the same time, the current situation of Zhongxing18 will not affect the company's current in-orbit satellite operations and daily business operations. We expect that although the current situation of Zhongxing18 will not have a significant impact on the company's future performance, if the failure cannot be repaired, it may delay the company's satellite communication business development process. It is recommended that the troubleshooting work of the Chinstar 18 satellite be kept close in the future. Investment suggestions We believe that as the sixth largest fixed communication satellite operator in the world, relying on its satellite resource advantages and technical competitiveness in the domestic satellite communication industry, the company is expected to help the company become a leader in the domestic satellite communication industry; the company has now built a complete satellite space operation system, and the number of domestic users has maintained steady growth while actively expanding overseas users, which is conducive to the company's future revenue growth; the current failure of the Zhongxing-18 satellite, although the project insurance amount can cover the project investment amount, it will It has adversely affected the development process of the company's satellite communication business, so it is recommended to keep an eye on it. Based on the above view, we estimate that the company's operating income in 2019-2021 will be 2,834 million yuan, 3,067 billion yuan and 3.443 billion yuan respectively, net profit of 454 million yuan, 502 million yuan and 587 million yuan respectively, and EPS of 0.11, 0.13 and 0.15 yuan respectively. The current stock prices correspond to 89 times, 75 times and 65 times PE, respectively. Risk warning: There is a risk that the satellite launch will fail; there is a risk that the satellite will fail while the satellite is in orbit; and the development of domestic and foreign satellite communication markets falls short of expectations.