Steady increase in revenue, short-term pressure on profits, focus on the installation of elevators, aftermarket, diversified manufacturing growth potential companies in 2019 to achieve income of 221 billion yuan / yoy+4%, return net profit of 1.08 billion yuan / yoy-15%, performance slightly lower than we expected; elevator industry competition is still fierce, gross profit pressure is the main reason for the decline in performance compared with the same period last year. We believe that: 1) the overall domestic elevator market is stable, and the installation of elevators in old residential areas is expected to contribute to a certain incremental demand, post-market service revenue or new growth points. The company's elevator business still has stability and medium-and long-term growth; 2) the layout of new industries such as precision reducers has a bright future, and the multi-dimensional layout of advanced manufacturing at the group level is expected to form a joint force, with plenty of cash on hand to ensure long-term competitiveness. We expect EPS to be 1.08,1.13,1.19 yuan in 2022, maintaining the "overweight" rating.

Elevator revenue maintained steady growth, 2019 single-quarter gross profit margin decreased compared with the same period last year, compared with the previous year, the company achieved elevator business income of 20.8 billion yuan / yoy+5%, sales of 89000 units / yoy+10%, accounted for 94% of revenue. In the past 19 years, due to the influence of high raw material prices and overcapacity, the competition in the elevator market has become more fierce. The company's gross profit margin 16.50%/yoy-2.6pct, parent net profit rate 4.88%/yoy-1.09pct, net cash flow of operating activities is 173 million yuan / yoy-8%.

2018Q1~2019Q4 's single-quarter gross profit margin was 20.36%, 19.78%, 19.25%, 17.18%, 17.08%, 16.44%, 16.27% and 16.39%, respectively. As the downward trend of prices stabilized, 2019Q4 gross profit margin rebounded from the previous month. We believe that as a local leader, the company's ability to control the cost side is better than that of the industry as a whole, at the same time, the proportion of service revenue increases, and there may be room for repair in the medium and long term gross profit margin.

The installation of elevators in old residential areas and after-market services (old elevator renovation, elevator maintenance) gradually contribute to new growth. The slowdown in real estate development has a certain impact on the demand for new ladders. However, the demand for the installation of elevators and services (old elevator renovation, elevator maintenance) promotes the overall capacity of the elevator industry to rise steadily: 1) the old house is equipped with elevators:

Elevators are one of the key points in the transformation of old residential areas. at present, governments across the country encourage and support the installation of elevators in old houses as a livelihood project, and the company has launched an one-stop elevator service in the whole life cycle. according to the company announcement, the company completed the installation of 3000 elevators in old houses in 2018, an increase of more than 30% in 2019. 2) renovation of old ladders and maintenance of elevators: at the end of 2019, there were nearly 7 million units in China, and the demand for transformation was released year by year. In 2019, the year-on-year increase in the number of old ladders increased by more than 50%. In 2019, the income of the company's installation, renovation, maintenance and other service industries exceeded 6.5 billion yuan, accounting for more than 31% of the income.

The leading elevator manufacturing enterprises with steady demand and diversified layout will overlay the service-oriented strategic transformation under the positive factors such as the "increase" rating, the renovation of old residential areas, the investment of subways and other infrastructure, and the release of demand for the renewal of old staircases. The company's elevator business is expected to develop steadily. The company's business focuses on the domestic market. As the domestic epidemic is basically under control and the company and its downstream return to work and production in an orderly manner, we expect the impact of the epidemic on annual performance to be controllable as a whole. However, considering that the competition in the industry is still fierce and the gross profit margin repair process may be slower than previously expected, we reduce our forecast for the gross profit margin of elevator business in 20,21, and expect to achieve net profit of 11.1,11.6 and 1.22 billion yuan respectively in 2022, corresponding to 13, 12 and 12 times of PE. The average PE of the elevator comparable company in 20 years is 16 times, giving the company a reasonable PE of 15 times and 18 times in 20 years, with a target price of 16.20 yuan and 19.44 yuan.

Risk tips: the growth rate of real estate investment is lower than expected; the process of renovation and installation of elevators in old residential areas is not as expected; the promotion and layout of new industries and new products are not as expected; the price of raw materials is higher than expected.