The company's settlement gross profit margin continues to reflect the impact of the price reduction of previous orders. We believe that the newly signed unit price of the company has stabilized first, and the gross profit margin may have reached the bottom. In addition, service businesses such as elevator renovation, installation and maintenance have performed well, and the installation business is expected to maintain high growth. As the benchmark of Shanghai National Reform, the company has excellent operating ability and is expected to continue to increase its market share and maintain its "buy" rating.

The company's performance was slightly lower than expected. In 2019, the company achieved revenue of 22.116 billion yuan, up 4.16% from the same period last year, realized net profit of 1.08 billion yuan, down 14.90% from the same period last year, and deducted 1.003 billion yuan from non-return net profit, down 16.74% from the same period last year. The operating income and net profit in the fourth quarter were 55.01 yuan and 218 million yuan, respectively, compared with the same period last year, and the profit decline was narrower than the third quarter. During the reporting period, the company's comprehensive gross profit margin was 16.50%, down 2.6pcts from 19.10% last year, and the gross margin rebounded slightly to 16.39% in the fourth quarter from the previous quarter.

The gross profit margin of the new ladder settlement may have hit bottom, and the revenue of the service industry continues to perform well. During the reporting period, the gross profit margin of the company's elevator business fell 2.68pcts to 16.39%. The operating income and net profit of the subsidiary Shanghai Mitsubishi Elevator were 21.013 billion and 1.324 billion yuan, respectively, which were + 4.69% and-24.75% respectively compared with the same period last year. The apparent gross profit margin is still digesting the pressure of price reduction in the early stage, but considering that the company has stabilized first at the price end, the settlement gross profit margin may have reached the bottom. Combined with operating cash flow of 173 million yuan (down 7.98%) and contract debt of 14.711 billion yuan (down 4.19%), downstream customers may still face certain financial pressure under the epidemic, and the statement changes brought about by the loosening of the company's business conditions may continue to 20H1. In addition to the new ladder market, the renovation of old ladders and the retrofitting of old houses continue to perform beautifully. For the whole year, the number of renovations of old ladders has increased by more than 50% compared with the same period last year, and the retrofitting of old houses has increased by more than 30%. The company's service industry revenue (excluding installation) accounts for more than 31% of revenue.

The reform process of state-owned enterprises may be accelerated, and the investment income is expected to maintain a steady increase. On December 10, 2019, the company announced that it plans to set up Dongying Xinsheng equity investment with its own capital of 1 billion yuan, with emphasis on new materials, high-end equipment, high-end chemical and other industries. at the same time, the company acquired 100% equity in Shanghai Laogang Shenling Electronic Cable and 70% equity in Liyang Shenling Elevator Project from Shanghai Electric Investment at 258 million yuan and 93.8 million yuan respectively. Undertake the assets that interact frequently with the elevator business at the group level, and with the completion of group securitization, the reform of state-owned enterprises at the company level may continue to be promoted. In addition, the company's investment income related to construction machinery has performed well, and the overall investment income is still expected to increase steadily.

Risk factors: the decline in real estate sales is a drag on the main elevator industry; RV reducer business sales and profitability are not up to expectations; state-owned enterprise reform policy uncertainty; non-recurrent income uncertainty and other risks.

Investment suggestion: the company's settlement gross profit margin continues to reflect the impact of previous order price reduction, we believe that the company's newly signed unit price has stabilized first, gross profit margin may have reached the bottom, in addition, elevator renovation, installation and maintenance and other service business has performed well, the installation business is also expected to maintain high growth. As the benchmark of Shanghai national reform, the company has excellent management ability and is expected to continue to increase its market share. Considering the fluctuation of gross profit margin and the impact of the epidemic, we downgrade the company's net profit forecast for 2020-21 to 11.42 yuan and 1.226 billion yuan (the original forecast is 14.86 yuan and 1.606 billion yuan), and increase the profit forecast for 2022 to 1.326 billion yuan, maintaining the "buy" rating.