Incident 1: On January 20, 2019, the company released its annual performance forecast: In 2019, it is expected to achieve net profit of 1.64 to 169 million yuan, and net profit of the mother to reach 15.92 million yuan in the same period last year, an increase of 930.0%-960.0% over the same period last year. Incident 2: Tongxin Software, a shareholding subsidiary of the company, announced on January 14, 2020, that the latest version of the unified operating system UOS developed by the company was officially released to partners. Comment: R&D and equity incentives have led to a decline in performance after deduction of investment income. The company's overall operating conditions are normal. The company is expected to achieve net profit of 164-169 million yuan in 2019, an increase of 930%-960% over the previous year. The main reason is that the company used its wholly-owned subsidiary Wuhan Chengmai to increase its shares in the company Tongxin Software (holding 44.44% of shares after the capital increase) to obtain investment income of 157 million yuan. After deducting this, the company's net profit in 2019 is expected to be 654-11.31 million yuan, compared to net profit from the parent in 2018 15.92 million yuan fell 59%-29%, mainly due to impairment of goodwill, increase in R&D investment and labor costs, and accrual of equity incentive expenses. As of the end of the third quarter of 2019, the company's goodwill book value was 3.15 million yuan, and the impact was limited, so it can be deduced that R&D investment and equity incentives were the main reasons for the decline in net profit after deduction of investment income. Overall, the company's operating conditions were normal. The official version of UOS 20 was released. The UOS concentrator is surging, integrating resources, and making concerted efforts: the UOS preparation team was voluntarily initiated by a number of core domestic operating system companies. The first batch of members included China Electronics Group (CEC), Wuhan Shenzhidu, and Nanjing Chengmai; focusing on uniformity and reconstructing the OS ecosystem: the UOS project shows the development trend of our previous research on the domestic OS “Oriental Open Source, Red Jinggang”. Tongxin joined hands with open source to achieve the unification of application stores, UI, and kernels, attracting upstream and downstream industry chains to build UOS Status, now supports nearly 30 original models Applications and application software from ten major open source communities restructure the domestic OS industry ecosystem; complete adaptation, and accelerated industrial collaboration: UOS currently supports various domestic terminals and servers for chip platforms such as Longxin and Feiteng, and has also carried out comprehensive compatibility and adaptation work with hundreds of software vendors. “IT restructuring” is the broad logic of technological innovation. Restructuring technology leaders 2020 is expected to be a large-scale implementation of “IT restructuring”. From CPUs, servers, and storage to software operating systems, databases, middleware, etc., all will present the restructuring of the technology product market, leading companies will restructure IT core competitiveness, restructure core technology products, and restructure the market industry ecosystem. In the field of hard technology, domestic operating systems are the core basic software for IT restructuring. Currently, the market share of domestic operating systems is less than 10%, and desktop and mobile terminals are even less than 1%. UOS will be the core asset of the “IT restructuring” wave. The technology cycle will open up the “Technology Moutai” feast. In the future, domestic operating systems are expected to open up 100 times more space, and related listed companies will continue to receive technical dividends and performance dividends brought about by technological restructuring. The domestic OS market share is small, and the penetration rate is low. UOS may be the current “Jinggang Association” development trend. Currently, the size of the domestic operating system market in China is rising year by year. In 2018, the global operating system market was about 28 billion US dollars, and the Chinese market accounted for about 10% of the market share, about 18.9 billion yuan, while the market size of domestic operating systems was about 1,513 billion yuan, accounting for only about 8% of the sales market share. Even domestic desktop and mobile operating systems are still in their infancy, accounting for less than 1% of the domestic market share, so there is still a long way to go in building an overall ecosystem. “IT restructuring” accelerates the cycle of technological innovation, and domestic operating systems will likely present exciting market opportunities. The company has been undertaking the implementation of solutions from Huawei for many years, and has little experience in the industry. Founded in September 2006, Fachengmai Technology is the world's leading software outsourcing service provider for the mobile Internet and smart terminal industry chain, and is committed to providing customers around the world with full-life cycle solutions. The company's main business covers the entire mobile smart terminal industry chain, including system platforms, integrated communications, application software, human-computer interaction technology, and mobile Internet. We provide global customers with solutions for the full life cycle of mobile software, covering consulting, design, development, testing and technical support, and providing solutions for smartphones, tablets, and data communication terminals based on the Android platform. On November 25, 2019, Chengmai Technology plans to increase the capital of Tongxin Software by 100% of the shares of Wuhan Chengmai, a wholly-owned subsidiary, at RMB 204 million, to continuously promote resource integration and focus on domestic operating system development and ecological construction. As the backbone of domestic operating system solutions, Chengmai Technology has benefited from the high prosperity of the mobile service market driven by the rapid growth of mobile chips, mobile terminals, and the Internet market. In 2018, the company's operating income reached a record high of 534 million yuan, an increase of 9.9% over the previous year. In 2019, the company expects to achieve net profit of 1.64 to 169 million yuan, a year-on-year increase of 930.0%-960.0%. The main reason is that during the year, the company completed the sale of 100% of the shares of Wuhan Chengmai Technology Co., Ltd., a wholly-owned subsidiary, and is expected to receive a one-time investment income of 157 million yuan. If this income is deducted, the company's net profit for this year's net profit declined year-on-year compared to last year, mainly due to 1. Impairment of goodwill for subsidiaries; 2. R&D investment and labor costs increased compared to the same period last year; 3. The implementation of an equity incentive plan during the year and the corresponding share payment expenses were incurred. The impact of non-recurring profit and loss on the company's net profit during the year is estimated to be approximately $160 million. The company has a professional software design and development team. The technical and management team's strong demand analysis ability, communication ability and rich industry experience are the driving force for the company's performance to continue to grow. The scale of the company's R&D personnel continues to grow. As of December 31, 2018, the company had 2,546 R&D technicians, accounting for 90.70% of the total number of employees. According to the company's performance forecast for 2019, the company's R&D investment continued to increase during the year, providing strong support for the company's high-quality product development and renewal iteration. Participating in building the Huawei industry ecosystem and cooperating in a wide range of fields, listed companies are expected to continue to benefit. In 2017, Chengmai Technology officially became a Huawei public cloud partner officially authorized by Huawei Technology Co., Ltd. to provide users with services from purchase to customized deployment, and to undertake HUAWEI CLOUD's diverse cloud computing products, customized industry solutions that meet a wide range of business needs, and a one-stop cloud service platform. At this stage, the cooperative business with Huawei covers various fields such as mobile chips, mobile smart terminals, and mobile internet. The “IT restructuring” of the trillion-dollar industrial space will open an inflection point in the performance of listed companies. UOS: Focus on collaboration, focus on ease of use, and increase ecosystem construction, which is expected to become the pioneer of the “IT restructuring” era, UOS (Unity Operating System), continues to work hard to build a software and hardware OS adaptation ecosystem. Currently, Tongxin Software has carried out extensive and in-depth cooperation with manufacturers such as Longxin, Feiteng, Shenwei, Kunpeng, Zhaoxin, Haiguang, etc., and has carried out comprehensive compatibility and adaptation work with major domestic machine manufacturers and hundreds of software manufacturers. It is compatible with Huawei, Tsinghua Tongfang, Great Wall, Shuguang, Aerospace Science and Technology, Wave, etc. Lenovo and other complete machines There are more than 40 models of hardware such as terminals and server devices released by manufacturers, adapting to streaming, layout, and electronic signature applications, databases, middleware, virtualization, cloud desktops, etc. There are more than 200 server-side architectures and platforms issued by manufacturers. Through pre-installed app stores and software warehouses on the Internet, it is already supported by nearly 1,000 application software. Through the construction of an OS ecosystem, the transformation of domestic operating systems from “usable” to “easy to use” has been accelerated. Tongxin software has benefited from Deepin. UOS has now been recognized by testers for its fluency and stability. According to UOS actual use test data, the UOS system has the characteristics of simple installation, less system resources, and low configuration requirements. The overall system runs smoothly, the logic design is reasonable, and the interface is simple and easy to use. With its continuously improving software ecosystem, Tongxin is expected to become the mainstream operating system in the “IT restructuring” wave. The “leader” of Deepin's operating system, Chengmai Technology's R&D team, is expected to become the main force of domestic OS. In addition to the UOS of Tongxin Software, the operating system products of Chengmai Technology and its subsidiaries also include Deepin Technology's Deepin Operating System and Nanjing Chengmai's Wukong OS. Their OS products are suitable for multiple platforms, the product line is perfect, the version updates are good, and the level of technology and R&D is reliable. Deepin Technology's Deepin Operating System supports various CPUs such as x86, Longxin, Shenwei, and ARM. Its product types are rich, including desktop operating systems, server operating systems, secure operating systems, desktop virtualization systems, etc., with a unified platform and consistent experience. The Deepin team simultaneously develops the desktop environment and supporting basic software, and cooperates with third party vendors to develop the Linux version of the application. In addition to the nearly 30 deep original applications in which the development team participated, and several application software from the open source community, the Deepin system software ecosystem is currently improving, and user feedback is good. Deepin's popularity on distrowatch is basically stable at the top 10. With its excellent performance, Deepin System has the security operating system certification qualification of the Ministry of Public Security, and is also a procurement product designated by the central government. It was selected into the “2014 Genuine Software Procurement” personal operating system software group product selection procurement list. In 2018, the company won honors such as the national-level domestic software legalization pilot, the 2018 Safe and Reliable Endeavor, and the 2018 Most Influential Copyright Enterprise in China, and passed security level 4. Considering that Deepin Software has been recognized by domestic and foreign markets, we believe that Deepin Software will be in the leading position in the industry for a long time. The company's profit forecast and investment rating The company's revenue growth has continued to increase in the past three years, with generous R&D investment, good product performance, and broad industry market space. It is estimated that the company's net profit from 2019 to 2021 will be 168 million yuan, 0.58 million yuan and 0.92 million yuan respectively. The corresponding EPS is 2.1 yuan, 0.72 yuan and 1.15 yuan respectively, and the corresponding PE is 24 times, 70 times and 44 times, giving it a “highly recommended” rating. Risk warning: Market demand falls short of expectations, policy support falls short of expectations, product development falls short of expectations, and operating system ecosystem cultivation and growth falls short of expectations.