1. Event Overview On February 28, the company released the 2019 performance report, achieving operating income of 2.20 billion yuan, an increase of 55.87% over the previous year, and realized net profit of 254 million yuan, an increase of 59.00% over the previous year. 2. Analysis and judgment performance continued to grow at a high level. Q4 performance increased dramatically. In 2019, the company achieved operating income of 2.20 billion yuan, an increase of 55.87% over the previous year; net profit of 254 million yuan, an increase of 59% over the previous year, close to the forecast limit. The main reason for the increase in performance was the continued increase in military business orders during the reporting period. Looking at a single quarter, Q4 achieved revenue of 1,019 million yuan, an increase of 76.30% over the previous year; realized net profit of 124 million yuan, an increase of 73.34% over the previous year; and the growth rate of revenue and net profit for the fourth quarter increased significantly month-on-month. Military electronics is the core business, and is expected to continue to grow rapidly in the future. The military electronics business has become the company's largest sector, mainly including microwave circuits and components and semiconductor devices, such as microwave diodes and crystal triodes, microwave monolithic chips, hybrid integrated circuits, etc. The company disclosed an order contract for T/R components for array antennas signed with a company in CLP. The amount was 85 million yuan, accounting for 6% of last year's revenue. As military spending in the field of defense informatization continues to rise, and military orders at the end of the 13th Five-Year Plan period are expected to achieve a breakthrough, the company's military industry sector will continue to maintain rapid growth. The ship sector has received many orders, and restorative growth can be expected. On July 17, 2019, the company disclosed that it won five 30-meter coastal patrol boat projects with a total bid amount of 88 million yuan, accounting for 6.24% of the company's 2018 revenue, which had a positive impact on 2019 and 2020 revenue. On May 6, 2019, the company disclosed an announcement on signing a memorandum of understanding with overseas special customers for large intended orders. It plans to provide customers with 14 68-meter naval patrol boats using a 5+9 approach. The estimated price for each ship is US$13.2 million. The estimated total intended order amount is US$184.8 million (approximately RMB 1.24 billion). Since 2019, the company has received numerous ship orders, and the company has become one of the largest aluminum alloy high-speed passenger ship manufacturers in China. As the problem of overcapacity in the shipbuilding sector is gradually eliminated, we expect the company's ship sector to experience restorative growth in the future. Laying out the field of civilian 5G, with broad market prospects, the company focused on power amplifiers. In 2018, it began research and development of a series of power amplifier chips for 5G, such as GaAs power amplifier chips, GaN power amplifier chips, GaN power amplifier tubes, and GaN internal matching modules. At the same time, the company conducted 5G technical cooperation research with a number of universities, and expanded contacts with Huawei, ZTE, and Ericsson. 2019 is the first year of 5G, and the industry is developing rapidly. As the Ministry of Industry and Information Technology and the Political Bureau of the Central Committee recently held meetings on speeding up 5G construction, the company's products are expected to gain broad market space. Implement equity incentives and be optimistic about the company's long-term development. On January 15, 2020, the company announced the 2020 stock options and restricted stock incentive plan. It plans to grant a total of 51.95 million shares of rights to 133 senior managers, core technology (business) personnel, etc., including 48.95 million stock options and 3 million restricted shares. The option exercise price is 7.84 yuan and the restricted stock price is 3.92 yuan/share. The company's interests are tied to the interests of core employees, which is conducive to the long-term development of the company. 3. Investment recommendations The company has achieved a breakthrough in the field of military electronics. The original boat sector still has room for growth in the future. We are optimistic about the company's long-term development. The company's EPS for 2020 to 2021 is expected to be 0.34 and 0.44 yuan respectively, and the corresponding PE is 40X and 30X, respectively. Comparable companies have an average valuation of 50X, giving it a “recommended” rating. 4. Risk warning 1. Shipbuilding and capacity removal is slow; 2. Product development progress falls short of expectations; 3. There is a risk of volatility in military orders