Description of the incident On April 21, Huati Technology released its 2019 annual report. During the reporting period, it achieved revenue of 712 million yuan, an increase of 35.21% over the previous year; net profit to mother was 94 million yuan, an increase of 33.41% over the previous year. At the same time, the company announced its 2020 quarterly report. During the reporting period, it achieved revenue of 217 million yuan, an increase of 64.38% over the previous year, and net profit to mother of 30 million yuan, an increase of 26.54% over the previous year. Incident review gross margin continued to rise for 3 consecutive years, and the pace of revenue recognition affected Q4 performance in 2019: Driven by an increase in the share of production and sales of smart street lights and cultural customization products with higher unit prices, the company's overall gross profit margin in 2019 was 36.44%, an increase of 0.95pct over the previous year, and continued to increase for 3 consecutive years. By business: In 2019, the company's road and landscape lighting revenue was 274 million yuan and 40 million yuan respectively, down 9.47% year on year, up 13.41%, and gross margin increased by 1.26 pct and 6.94 pct to 36.10% and 43.52%, respectively. In 2019, 8999 smart street lights were sold, achieving revenue of 954.404 million yuan, an increase of 102.22% over the previous year, and the smart street light business continued to expand. Project installation revenue in 2019 was 340 million yuan, up 153.53% year on year, and gross margin fell 1.27pct to 36.10%, which is still at a high level in the industry. Affected by accounting policies and the time of acceptance of the company's projects, the fourth quarter of 2019 achieved revenue of 187 million yuan, an increase of 23.21% over the previous year, and net profit to mother of 014 million yuan, a year-on-year decrease of 40.83%. In the future, the company's revenue recognition method is expected to be further improved. The impact of the epidemic is limited, and smart street lights can be expected to grow: in Q1 2020, the company's smart street lights began to be released, and the overall revenue growth rate reached 64.38%. However, gross margin fell 10.56pct year over year to 26.94%, or the share of smart street lamp revenue structure from individual projects. The company's overall business has been limited by the impact of the epidemic. As new orders continue to increase in the future, the smart street lighting business can be expected to grow at a high rate. The rise of new 5G infrastructure helps Huati transform from products to operations: 5G is leading the wave of new domestic infrastructure construction, and core cities and second- and third-tier cities have introduced 5G smart street light construction plans to meet 5G light pole station construction needs. The company joined hands with the University of Electronic Science and Technology to accumulate core technology reserves, increase competitive barriers, join forces with Tencent to explore smart city ecosystems, and deeply bind Huawei to benefit from the wave of 5G small base station construction. In the future, it will achieve diversified development from single product sales to smart city operation services. Investment advice: Convertible bond fundraising has been implemented, and stock price restraints have been eliminated. As new orders continue to increase in the future, performance is at an inflection point. The company's net profit for 2020-2022 is estimated to be 156 million yuan, 237 million yuan, and 357 million yuan corresponding to PE 31X, 20X, and 13X, which is recommended. Risk warning: 1. 5G construction falls short of expectations; 2. The domestic epidemic affected construction progress.