Kangli Elevator released an annual report: operating income of 3.663 billion yuan, up 18.48% year on year; net profit of 252 million yuan, up 1518.28% year on year; net profit after deducting non-net profit of 243 million yuan, up 565% year on year; net operating cash flow of 421 million yuan, up 19.64% year on year. It is mainly due to the increase in industry prosperity and the effects of controlling costs and expenses. The renovation of old neighborhoods is a direction that can not only effectively expand domestic demand, but also improve people's livelihood projects. It will also be one of the main themes in 2020. The renovation of old neighborhoods is accelerating, and elevators are one of the main beneficiary industries. They are expected to open up the growth ceiling and start a new boom cycle. It is estimated that Kangli's net profit in 20-21 will be 366 million/426 million, and the corresponding PE will be 19 times/16 times. I continue to highly recommend it! Revenue increased by 18.48%, while net profit increased by 1540.47%. The main reasons are: (1) Gross margin increased significantly, profitability improved significantly: the company's average gross profit margin was 29.69% in '19, up 3.86pct year-on-year, mainly due to benefiting from downstream completion and renewal demand, the elevator industry established an inflection point in '19, and the industry's annual sales volume increased by 12.8% year on year, bringing significant scale effects, while raw material prices remained stable. Overseas market development was successful in '19, and the added value of the brand increased, and the gross margin of overseas sales increased 7.74pct year on year; (2) Thanks to the company's refined cost control, sales and management expense ratios all dropped significantly: sales expense ratio was 12.66%, down 1.38 pct year on year (significant reduction in operating expenses and commissions, advertising and promotion expenses, etc.), and management expenses were 3.92%, down 0.51pct year on year; however, in '19, the company's R&D expenses were 150 million yuan, up 26.52% year on year, accounting for 4.1% of revenue, up 0.26pct year on year. The results of continuous R&D investment have been remarkable. The company has manufactured more than 500 high-speed elevators of 4 m/s or more, more than 3,600 heavy-duty public transportation escalators, won bids for more than 60 domestic subway, urban rail, and high-speed rail lines, and more than 20 foreign rail and railway lines. Execution orders continue to grow. As of the end of '19, the valid orders currently being executed by the company were 5.943 billion yuan (not including the winning bid amount for the Beijing New Airport section of the Intercity Railway Link Line and Suzhou Rail Transit Line 5, which won the bid but did not receive a deposit, totaling 367 million yuan), an increase of about 5% compared to the end of the same period last year. The company grasped the peak of national key construction and actively participated in market bidding. In 2019, it won a total of 508 million yuan in bids for a number of public transportation leading electricity and escalator projects in terms of high-speed rail and urban rail. The company actively lays out livelihood projects to install elevators in old buildings. Kangli's wholly-owned subsidiary “Happiness Plus” is currently targeting the market with a dual business model of single elevator sales and integrated engineering. In '19, the “Happiness Plus” brand, solutions, and services were upgraded in all aspects, and three standardized products were launched to meet most building decoration needs. At the same time, the company cooperated with Shaanxi Construction Jinniu to set up a joint venture to accelerate implementation of regional marketing development, relying on the internal elevator support of Shaanxi Construction Group and regional market advantages. Continue to expand overseas markets through the “Belt and Road”. In 2019, in the context of product price competition spreading across the global export market, overseas departments organized a working conference for overseas agents in Dubai with preferred agents and steady management as business ideas. They participated in elevator exhibitions in various places such as Russia, South Africa, Germany and South America, showcasing the strength of Kangli Elevators in all aspects. The volume and amount of new orders received in the American region, Europe and Africa region, Russia, and the CIS region increased compared to the same period, and expanded the Belarusian market. Currently, Kangli Elevator has covered more than 100 countries and regions around the world. The company has developed steadily in overseas markets by cultivating overseas agents and optimizing sales channels. Use informatization construction to promote innovation and improve overall operational efficiency. From informatization management of the whole process of product supply, production, delivery and after-sales, to meet customer needs, create all-round competitiveness in supply, production and marketing based on the Internet of Things, and gradually transform to digital business development. On the supply side: focusing on the construction of an industrial Internet platform, promoting flexible capabilities in intelligent manufacturing and production, upgrading the SRM supplier relationship management platform, and opening up upstream and downstream information feedback based on the supply chain; production delivery side: promoting continuous optimization of product and service delivery processes based on OA office automation systems; after-sales side: in '19, AI image recognition technology was gradually implemented on elevators and escalators as optional product functions and after-sales value-added services; financial aspects: improving the refinement of group financial accounting and professionalization of financial management based on the group financial sharing platform. The elevator industry is one of the main beneficiaries of the renovation of old neighborhoods. The Politburo meeting of July 19 proposed adding the renovation of old urban neighborhoods to the economic shortfall repair project. In January 2020, the Prime Minister once again publicly emphasized his decision to promote the renovation of old neighborhoods on a large scale. The country's encouraging attitude towards the renovation of old neighborhoods can be seen in the country's encouraging attitude towards the renovation of old neighborhoods. The renovation of old neighborhoods is divided into basic categories, upgrading categories, and improvement categories. The installation of elevators is classified as an upgrade category, but essentially it also contains basic category attributes. Because of severe aging, it should be included in people's livelihood projects. This is also the reason why local governments are continuously increasing their subsidies. The installation of new elevators has been slow in the past few years. One of the important reasons is that it requires the owners' own capital. It is for this reason that the country has repeatedly expressed its attitude and accelerated the introduction of relevant incentive policies. Expanding domestic demand in 2020 is one of the main themes, and the renovation of old neighborhoods will significantly accelerate progress. Currently, residents in our country living in old houses (houses without elevators in the 1980s and 90s) are representative of aging at this stage. Daily travel is extremely inconvenient. Installing elevators in old buildings has gradually become an urgent need. As the aging of our country's population comes to the forefront, promoting the installation of new elevators in old buildings is only a major trend in various regions; it is a livelihood project. The current slow progress is due to the fact that progress has just begun. It takes time for residents to accept it, and the process also needs to be improved. In October last year, Shanghai and Beijing introduced policies to increase subsidies and improve the elevator installation process. Once some regions, such as Shanghai and Beijing, succeed first, other large and medium-sized cities will soon follow suit. Affected by the epidemic in 2020, the country's economic growth rate is under high pressure. Against this backdrop, the renovation of old neighborhoods is a direction that can not only effectively expand domestic demand, but also improve people's livelihood projects, and will also be one of the main themes. According to estimates, the country needs to install at least 2.04 million elevators. According to the results of the “Installing Elevators in Existing Homes” research conducted by the Xi'an Association for Science and Technology in 2016, before 2000, there were 405 residential areas, 15.4 million square meters, and 227,000 households within the main urban area of Xi'an. Nearly 40% of the residents were elderly, and some neighborhoods even reached 60%. Considering that elevators have already been installed in some neighborhoods, according to 30% of the 227,000 households, it is planned to install about 68,100 elevators. Based on the calculation that 14 households in each unit of a seven-story building install one elevator, at least 4,864 elevators need to be installed. Based on field data from Xi'an, from 1980 to 2000, the residential construction area of new residential areas in China was 8.035 billion square meters. The country reported 170,000 old urban neighborhoods in need of renovation, so at least 2.04 million elevators needed to be installed. The market for installing elevators is vast. The company actively lays out livelihood projects to install elevators in old buildings, in line with the general development direction of the elevator industry. Kangli's wholly-owned subsidiary “Happy Elevator” is currently targeting the market with a dual business model of single elevator sales and integrated engineering. It is developing an agent system. Through independent projects and cooperative development projects, it has carried out model elevator construction projects in Beijing, Chengde, Jinan and other places, and has launched a new elevator selection product for the existing elevator market. Continue to highly recommend StanoLift and maintain the “Highly Recommended - A” rating. The profit repair brought about by the “scale effect+pattern improvement” will continue. The renovation of old neighborhoods in 2020 is an important direction for expanding domestic demand. The elevator industry is one of the main beneficiary industries, opening up the growth ceiling, and is expected to start a new round of industry boom cycle. Currently, the biggest risk comes from the cost side (steel, rare earth prices). The year 19 is already a turning point in the performance of the elevator industry, and in the next few years, demand for renewal plus renovation of old neighborhoods will lengthen the boom cycle. It is estimated that Kangli Elevator's net profit in 20-21 will be 366 million/426 million, corresponding to PE 19 times/16 times, maintaining the “Highly Recommended - A” rating. Risk warning: (1) Steel prices have risen sharply: The main raw material for elevators is steel. If the price of steel rises sharply, it will significantly affect the gross profit margin of the product; (2) the risk of rare earth price fluctuations: rare earth is the main raw material for tractors, which are key components of elevators, and price fluctuations will also affect elevator gross profit margin to a certain extent; (3) real estate growth falls short of expectations: real estate is still the largest downstream of the elevator industry. If the completed real estate area falls too fast, it will significantly affect elevator demand.