Events:

Company announcement 2019 Annual report and first quarter 2020 results Forecast: in 2019, the company realized operating income of 1.046 billion yuan, an increase of 17.68% over the same period last year; a net profit of 286 million yuan, an increase of 35.25% over the same period last year; and a net profit of 269 million yuan, an increase of 29.74% over the same period last year. In the first quarter of 2020, the company is expected to achieve a net profit of 5364-76.63 million yuan, a decrease of 30% compared with the same period last year.

Main points of investment:

With the support of smart express cabinets, overseas revenue has increased rapidly. Intelligent express cabinet is the company's main product. In 2019, the company's intelligent express cabinet product revenue reached 970 million yuan, an increase of 16.5% over the same period last year, accounting for 92.85% of the company's total revenue. Amazon and Fengnest are the two major customers downstream of the company. In 2019, the company's revenue from Amazon and Fengnest was 454 million yuan and 242 million yuan respectively, a year-on-year growth rate of 66% and-16% respectively. The company's combined revenue from Amazon and Fengnest accounted for 66%. The demand for express cabinets in North America and Europe grew rapidly in 2019. The company achieved overseas revenue of 541 million yuan, a substantial increase of 66.38% over the same period last year. The increase in the proportion of overseas revenue led to an increase in the company's overall gross profit margin. In 2019, the company's gross profit margin increased by 47.84%, an increase of 0.93pct. In terms of expenses, the company's expenses were well controlled in 2019, with an overall expense rate of 19.28%, a year-on-year reduction of 0.80pct, of which the sales expense rate was 12.11%, a decrease of 1.55pct over the same period last year; the management expense rate was 3.59%, a decrease of 0.23pct over the same period last year; and the R & D expense rate was 5.04%, an increase of 1.16pct over the same period last year.

Under the influence of the epidemic, the performance in the next quarter has exceeded expectations, with high growth in contactless distribution. At present, the company has three production bases, namely, Shenzhen Henggang, Hubei Zhilai and Vietnam factories, among which Henggang factory undertakes small batch sample trial production and small batch customization production tasks, Hubei production base undertakes large-scale and large-scale customer production tasks, Vietnam factory is newly built in 2019. At present, the annual production capacity of the company's two factories in Shenzhen Henggang and Hubei Zhilai is about 120000 sets (20,000 sets). After IPO fund-raising and expansion, Hubei Zhilai will increase its annual production capacity by 80,000 units (20,000 sets). Hubei Zhilai, located in Xianning City, is the company's main production base. The epidemic has had a great negative impact on the company in terms of demand and production capacity. The company announced that the first-quarter results forecast has actually exceeded expectations. We believe that the main reasons are: 1) the trial operation of acceptance revenue recognition has delayed part of the revenue recognition; 2) the epidemic is accelerating the penetration of contactless distribution.

It is optimistic that the deployment speed of smart express boxes will be accelerated in the next few years. After experiencing the rapid expansion in the early stage, in 2019, the express cabinet operators, which mainly focused on Fengnest and China Express, slowed down the distribution of express cabinets, taking improving the profitability of existing express cabinets as the main task, and the capital expenditure performed poorly compared with the same period last year. At present, China Post is actively promoting the intelligent transformation of traditional letter newspaper boxes. The business model of intelligent letter newspaper boxes is much better than that of intelligent express cabinets. Intelligent newspaper boxes are purchased by developers, owned by all owners, and operated by express cabinet operators. There is no need to pay site fees to the property, and users do not need to pay overtime fees, which will significantly reduce capital expenses and operating costs on the basis of the business model of intelligent express cabinets. We expect that after the completion of asset optimization, with the support of intelligent newsboxes, the deployment of express cabinets may be accelerated from 2020, and Zhilai Technology will significantly benefit as the core supplier of Fengnell.

Profit forecast and investment rating: give a "buy" rating. We believe that the company is the domestic intelligent express cabinet leading enterprises, holding Fengnest and Amazon two advantage customers, will benefit from the increase in capital expenditure of Fengnest. We estimate that the company's EPS in 2020-2022 will be 3.69 PE 4.890.12 yuan respectively, and the corresponding share price will be multiple of 17-13-10, giving a "buy" rating for the first time.

Risk tips: 1) the negative impact of the epidemic on the company is higher than expected; 2) Fengnest and Aamzon capital expenditure is lower than expected; 3) the risk that the company's performance is lower than expected; 4) systemic risk.