Events:

The company released its 2019 interim report on the evening of August 27, 2019. During the reporting period, the company achieved operating income of 1.089 billion yuan, an increase of 0.64% over the same period last year, operating profit of 142 million yuan, up 36.66% over the same period last year, and net profit of 125 million yuan belonging to shareholders of listed companies, an increase of 35.99% over the same period last year, of which Q2 achieved a net profit of 65.41 million yuan in a single quarter, up 68.9% from the same period last year. The net profit belonging to shareholders of listed companies after deducting non-recurring gains and losses was 120 million yuan, an increase of 33.37% over the same period last year.

Smart health business has a strong growth momentum.

From a sub-sector point of view, the growth of intelligent health business is the most significant, up 11.56% from the same period last year, mainly due to the continuous promotion and construction of Shenyang regional population health information platform. At present, the platform has built 18 contracted service points for family doctors in the city. About 5000 family doctors responded to the government's call to be stationed; the company's core intelligent transportation business maintained steady growth, and the camp recorded an increase of 3.24% during the reporting period. Smart city business revenue fell 7.11%, mainly due to the company's strategic adjustment, is gradually shrinking the business segment.

With the strategic transformation of the company, the net profit is expected to increase significantly in the second half of the year.

The company is gradually transforming from being a "smart city builder" to a "city brain operator", from obtaining front-end construction revenue to obtaining back-end data operation rights. The company takes the lead in initiating changes in the core field of transportation business, and its product Hangzhou Traffic cerebellum is a good promotion and application, while recycling data, it has laid the foundation for the landing and replication of the company's traffic brain in other cities in the future. In addition, due to the full provision of 235 million bad debt losses in the second half of last year and negative factors, we expect the company's net profit to improve significantly this year.

Strengthen fee control and improve profitability

During the reporting period, the company's expenses decreased significantly, and the management expenses and sales expenses decreased by 19.54% and 3.12% respectively compared with the same period last year, demonstrating the company's ability to control fees. Another reason for the rise in net profit is that the daily interactive listing of industrial funds invested by the company has brought a 48.63 million return on investment.

Profit Forecast:

It is estimated that the net profit from 2019 to 2021 will be 2.29, 254 and 305 million yuan, corresponding to 0.35, 0.39 and 0.46 yuan for EPS and 22.3, 18.6 times for PE, respectively.

Risk hint: intelligent transportation industry orders decline; traffic cerebellum construction progress is not as expected