Event: the company issued an annual report with an increase of 14% in revenue and 30% in net profit on March 30, 2020. On March 30, 2020, the company issued an annual report: in 2019, the company achieved revenue of 806 million, an increase of 13.78% over the same period last year, and a net profit of 167 million belonging to the parent company, an increase of 30.18%, in line with expectations.

From January to fourth quarter of 2019, the company achieved revenue of 1.55,2.13,2.13 and 226 million respectively, with year-on-year growth rates of 11.07%, 11.88%, 12.85% and 18.59%, respectively.

Affected by the epidemic, the company forecasts a loss in the first quarter of 2020.

The company forecasts a net profit of-4800 to-43 million attributable to the parent company in the first quarter of 2020. Mainly affected by the epidemic this year, the company's testing business belongs to the service industry. although it began to resume work one after another on February 10, due to the impact of personnel and logistics, the operating income in the first quarter decreased significantly compared with the same period last year. In addition, the company is an industry with high investment in fixed assets, and depreciation expenses account for more than 60% of operating costs. We estimate that revenue in the first quarter will be close to 100 million. At the same time, due to the impact of the consolidation of new fixed assets, depreciation expenses have increased by more than 10 million, which is the main reason for the company's losses in the first quarter. With the gradual improvement of the domestic epidemic, we believe that these effects will be gradually weakened or eliminated.

The investment growth of the national network will play a certain role in promoting the company's follow-up income this year.

In 2019, the State Grid actually completed a grid investment of 447.3 billion yuan, down 11% from the same period last year. Recently, State Grid Co., Ltd. announced a substantial increase in grid investment in 2020. The total investment for the whole year will be raised from 408 billion yuan planned at the beginning of the year to 450 billion yuan, an increase of 42 billion yuan, or 10.3%. Therefore, the power grid investment is expected to achieve positive growth in 2020, the company is the domestic leader in the testing of high and low voltage electrical appliances, and the growth of power grid investment is expected to play a pulling role in the subsequent income of the company this year.

The epidemic affects the short-term, does not destroy the company's logic, and maintains a "highly recommended rating"

The company is the only independent third-party testing organization in China that can simultaneously engage in the testing business of high and low voltage electrical appliances, with complete testing qualifications and a leading position in the industry. The company has built five world first and five China first technical indicators, and a number of technical indicators to fill the domestic gap. Although the first-quarter results were affected by the epidemic, it does not destroy the company's long-term growth logic. With the gradual consolidation of projects under construction and the improvement of the company's capacity utilization, it is expected to usher in a performance release period. Considering the impact of the epidemic, we revised the company's performance to 174 million, 238 million and 296 million yuan in 2020-2021, but considering that the impact of the epidemic may be an one-off, so we maintain the company's "highly recommended" rating.

Risk hint: the second impact of the domestic epidemic situation