Incidents: New Beiyang released its 2019 Annual Report & 2020 Quarterly Report. The company achieved operating income of 2,451 billion yuan (yoy -7%); net profit of 322 million yuan (yoy -15.25%); net profit after deduction of net profit of 243 million yuan (yoy -33.72%); EPS of 0.48 yuan/share; and net operating cash flow of 339 million yuan (yoy +99.13%) in 2019. Among them, 2019Q4 achieved revenue of 882 million yuan (yoy +6.30%); net profit of 103 million yuan (yoy -13.89%); and net profit of 79.614,600 yuan (yoy -29.41%) after deduction of net profit from net income of net income after deduction of net profit of 79.614,600 yuan (yoy -29.41%). The first quarter of 2020 achieved operating income of 416 million yuan (yoy -24.64%); net profit of 19.081 million yuan (yoy -78.56%); and net profit of 9.184,000 yuan (yoy -85.66%) after deduction of net profit of 9.184,000 yuan (yoy -85.66%). The logistics and new retail business declined due to changes in major customer strategies, and the enhanced expansion and promotion of the financial business showed impressive growth performance: in 2019, the company's revenue situation was down 0.77% from the performance report, and net profit was reduced by 2.89%, which is generally in line with expectations. Looking at the breakdown, the strategic emerging business (finance, logistics, new retail) sector achieved revenue of 1,831 billion yuan, a year-on-year decrease of 7.81%, mainly affected by changes in major customer strategies. Among them, the pace of courier cabinet installation in the logistics business slowed down, and the number of orders delivered and installed for retail lockers in the new retail business declined year-on-year, leading to a decline in sales revenue. However, the company responded positively to market changes, sought breakthroughs in the field of automatic sorting, carried out new product research and development, and launched integrated marketing according to different scenarios, creating new performance growth points for subsequent development. In terms of financial business, benefiting from the intelligent transformation of bank branches and the implementation and promotion of gold standard policies, the company's key components and core modules have been expanded, promoted and applied. The self-developed cash cycle (TCR) engine was successfully sold for the first time at the HQ. The complete machine and sorting machine were also shortlisted for several head office bidding projects, and the overall revenue growth in the financial sector was impressive. In addition, the company's traditional business mainly ensured a stable level of revenue through the consolidation of the original offline channel distribution business and the expansion of the direct sales scale of its own stores through online channels, achieving revenue of 620 million yuan, a decrease of 4.49% over the previous year. In terms of gross margin, the gross profit margin of strategic emerging business was 42.71% (yoy +0.3%); the gross profit margin of traditional business was 47.66% (yoy +2.54%). By product, the gross profit margin of key basic components is 55.61% (yoy +1.25%), the gross profit margin of complete machine and system integration products is 40.19% (yoy -1.59%), and service and other gross margin is 31.49% (yoy +3.95%). Affected by the epidemic in the first quarter of 2020, the company's product promotion, production delivery and installation acceptance processes were delayed, leading to a sharp decline in revenue and profit. However, considering the catalytic demand for smart retail and smart logistics during the special period, it is expected to have a positive effect on the company's strategic emerging business development in the medium to long term. Expense control capacity is stable, strategic new business research and development continues to be strengthened, and cash flow from operating activities has improved: in 2019, the company's expenses ratio (excluding R&D) for the period was 18.76%, an increase of 1.85pct over the previous year. Among them, the sales expense ratio was 12.3%, the sales expenses were 300 million yuan; the management expense ratio was 6.01%, and the management expenses were 147 million yuan, which is basically the same as the same period last year. The financial expense ratio was 0.5%, and the financial expenses were $0.12 million, an increase of 20% over the previous year, mainly due to an increase in interest expenses and exchange gains and losses. Overall, the company's ability to control fees is stable. In terms of R&D, in 2019, the company focused on innovating self-service terminal integrated products, software and automation products, with a total R&D investment of 408 million yuan, an increase of 21.54% over the previous year; accounting for 16.65% of operating income, an increase of 3.91 pct over the previous year, and a capitalization ratio of 5.22%; R&D expenses of 389 million yuan, an increase of 21.3% over the previous year, mainly due to an increase in employee remuneration and an increase of 13.37% in the number of R&D personnel. In addition, the company's net cash flow from operating activities in 2019 was 339 million yuan, an increase of 99.13% over the previous year, mainly for the company to strengthen the control of external payments and collection of receivables. Of the non-recurring profit and loss, government subsidies included in current profit and loss were 31.4688 million yuan, an increase of 138.29% over the same period last year; non-current asset disposal profit and loss of 48.3968 million yuan, mainly due to investment income of 48.96 million yuan generated from the disposal of 8% of Valin Electronics' shares. The advantages of large-scale manufacturing are outstanding, and the successful issuance of convertible bonds accelerates smart retail layout: As a leading manufacturer of professional printing and scanning equipment in China, the company currently has an annual production capacity of more than 5 million contact image sensors, an annual production capacity of specialized printing and scanning products exceeding 1.2 million units, and has invested in the construction of an intelligent production plant for internationally advanced self-service terminal integrated products according to high standards. The annual production capacity of the company's intelligent equipment has moved from 250,000 to 350,000 units, which can respond quickly to market demand. Large-scale manufacturing is expected to form an advantage and competitiveness. Also, on December 12, 2019, the company's convertible bond project was officially issued. The stock conversion period was 6 months, and the initial conversion price was 11.9 yuan/share. A total of 877 million yuan was raised, which will mainly be used for the development and industrialization of self-service smart retail terminal equipment. After the project is delivered, the production capacity of the company's self-service smart retail terminal equipment can be increased by 100,000 units per year, and the main technical performance indicators of related products can reach the advanced level of similar products in China. It is estimated that the annual production will achieve revenue of 1,363 billion yuan, total profit of 190 million yuan, and profit after tax of 160 million yuan. With the rise of “contactless” services, the rise in the prosperity of the smart retail industry is expected to help the company achieve rapid growth. Investment suggestions: As an advanced intelligent equipment/equipment solution provider in China, the company focuses on the three innovative businesses of “finance+logistics+new retail” based on special printing and scanning products, with the gradual implementation of smart life application scenarios. Rapid future growth is expected. The company is expected to achieve operating income of 30.04, 37.80, and 4.694 billion yuan in 2020-2022, and net profit of 3.70, 5.08 and 635 million yuan, respectively, 0.56, 0.76, 0.95 yuan, corresponding PE is 19X, 14X and EPS 11X, maintaining the “Recommended” rating. Risk warning: the expansion of strategic emerging businesses falls short of expectations; the penetration rate of intelligent logistics falls short of expectations; R&D progress falls short of expectations; and industry competition is intensifying.