Description of the event On January 23, 2020, the company released its 2019 annual performance forecast. In 2019, the company achieved net profit of 4 million yuan to 22.88 million yuan, a year-on-year decrease of 70%-95%, and realized net profit without deduction of 13.66 million yuan to -3.66 million yuan, a year-on-year decrease of 109%-132%. The company achieved revenue of about 3 billion yuan in 2019, a year-on-year decrease of about 3.6%, and achieved gross profit of about 500 million yuan to 530 million yuan, an increase of about 36%-44% over the previous year. Incident review: mergers and acquisitions dragged down performance. Q4 showed significant month-on-month improvement: the company achieved revenue of about 843 million yuan in the fourth quarter of 2019, down 4.31% year on year. The main reason was the adjustment of the company's traditional optical access terminal business scale, which increased 19.24% month-on-month, mainly due to the gradual recovery of production capacity blockages caused by the company's early mergers and acquisitions, and a rapid increase of optical module shipments; taking the median performance forecast, the company achieved net profit of 22.66 million yuan in the fourth quarter, up 11.05% year on year, up 37.72 million yuan from the third quarter of a single quarter; Net profit was 9.34 million yuan, an increase of 27.34 million yuan over the third quarter of a single quarter. In terms of gross margin, the company's gross margin for the fourth quarter of 2019 was about 20.25%, an improvement of 4.09pct over the previous quarter, mainly due to the company's expansion in high-speed optical module production capacity driven by the revenue structure improvement. 400G has outstanding competitiveness in medium and long range, opening a high growth channel: the company undertakes Oclaro's medium- and long-range high-end optical module technology and product strength, and has mature products in 400G 10km (LR4) and 2km (FR4) scenarios. It has achieved batch shipments to major customers such as Amazon and Cisco, and 500m (DR4) is also gradually maturing. It is expected to receive orders from cloud service providers during certification tests. With the large-scale explosion of 400G demand, the company's major customer breakthroughs helped open up room for growth and drive high performance growth. 5G optical modules have entered the major customers of equipment vendors, and have great flexibility: the company has a complete 5G optical module product line, received a 2020 order from Huawei in the 25G 10km fronthaul field, and fully entered the Huawei 5G industry chain. Along with design plan updates and production capacity transfers domestically, the company's 5G full range of optical module technology and cost advantages are expected to show, and the benefits are great. Profit forecast and investment suggestions: In the fourth quarter of 2019, production capacity blockages caused by the company's early mergers and acquisitions have basically recovered, leading to significant month-on-month improvements in revenue and performance; 400G optical modules were shipped in batches by customers such as cloud service provider Amazon and equipment company Cisco; 5G optical modules received orders from major customers Huawei in 2020, and 100G LR4 won a high share bid, and fully entered the Huawei 5G industry chain. The company's net profit for 2019-2021 is estimated to be 0.23, 1.45, and 245 million yuan, corresponding to 28 or 16 times PE in 2020-2021, maintaining a “buy” rating. Risk warning: 1. Demand for 400G optical modules falls short of expectations or the breakthrough progress of the company's major customers falls short of expectations; 2. 10G PON volume falls short of expectations, dragging down PON business growth.