Main points of investment

Event: the company released its annual report in 2019, with an operating income of 825 million yuan, an increase of 20.01% over the same period last year, a net profit of 150 million yuan, an increase of 34.76% over the same period last year, and a non-return net profit of 145 million yuan, an increase of 26.86% over the same period last year, in line with market expectations.

Based on the continuous layout of the main business + international customer resources, the company's performance has achieved steady growth.

(1) the company achieved revenue of 825 million yuan in 2019, an increase of 20.01% over the same period last year, and realized net profit of 1. 5%.

5 billion yuan, an increase of 34.76% over the same period last year, and a comprehensive gross profit margin of 49.76%, down 0.24pct from the same period last year. By sales region, the company achieved export revenue of 546 million yuan in 2019, an increase of 35.59% over the same period last year, and domestic sales revenue of 279 million yuan, down 2.03% from the same period last year. At present, the company's products are mainly concentrated in the field of consumer electronics, mainly for top customers in the industry. The downstream customers of the company are mainly Apple Inc, Cisco Systems, Microsoft Corp and other well-known foreign enterprises, of which Apple Inc has been the company's largest customer for many years and has obvious advantages in international customer resources. High-quality customer resources not only bring stable business income for the company, but also enhance the brand market awareness of the company's products, and lay a solid foundation for the company's long-term sustained and stable development.

(2) profitability is expected to benefit from an increase in the proportion of products with high gross margins. In 2018, the company achieved 229 million yuan in sales of acoustic and radio frequency testing equipment, accounting for 33.33% of revenue, and the gross profit margin increased from 51.48% to 54.68%. The sales revenue of 2019H1 acoustics and radio frequency testing equipment reached 141 million yuan, the proportion of revenue increased to 34.81%, and the gross profit margin further increased from 54.68% to 57.32%, which is much higher than the average level of the automation industry (the gross profit margin of the industrial automation industry is between 35% and 40%). We believe that, driven by the development of the 5G industry, the proportion of acoustic and radio frequency testing equipment with high gross margin is expected to continue to increase, and profitability will be strengthened.

(3) based on the continuous layout of the business, the product moat is constantly broadening. In the early days of its establishment, the company focused on ICT and other test equipment, and in 2010 it was certified by Apple Inc as a qualified supplier to provide mobile phone antenna RF testing equipment, and its business gradually extended from electrical testing to acoustics and RF testing fields. At present, in the field of testing, the company has become a testing solution provider integrating radio frequency, acoustics, electricity, optics and visual inspection. In addition, relying on the advantages of existing products and customer resources, the company rapidly extends the product range to the field of automatic assembly, expands the business layout, and the product moat continues to expand.

(4) High investment in R & D helps the company to maintain a leading position in the industry. The company insists on independent innovation and always aims at cutting-edge technology in the industry. in 2019, the company invested 98 million yuan in R & D, an increase of 31.34% over the same period last year, accounting for 11.92% of revenue and an increase of 1.08 pct over the same period last year. By the end of 2019, the company had 157 national patents and 53 software copyrights. The downstream customers of the company are concentrated in the fields of consumer electronics, automotive electronics, medical electronics and industrial electronics, with a wide variety of terminal products and fast product replacement, resulting in a diversified, personalized and customized demand for industrial automation equipment. for this reason, the company has formed a research and development model of simultaneous implementation of open R & D and corresponding R & D, in which open R & D is active R & D. In order to take into account the potential market demand and existing customer customization needs. This R & D model enables the company to maintain a strong ability of independent innovation and rapid product and technology updates, so that the company's technology and products are always in a leading position in the industry.

The consumer electronics products of downstream customers iterate rapidly, which leads to the demand for related test products of the company. As analyzed above, the downstream application field of the company is mainly consumer electronic products, which has the characteristics of short life cycle and fast upgrading. Taking the company's main customers Apple Inc and Microsoft Corp as an example, Apple Inc may launch four new 5G phones in 2020, and Microsoft Corp will launch a new Xbox and dual-screen Surface (the company was certified by Microsoft Corp as a qualified supplier in 2008 and entered the Microsoft Corp supplier system to provide it with acoustic testing equipment related to the functions of microphones, speakers and other components of electronic products). We believe that the rapid iteration of consumer electronics puts forward higher requirements for the application scenarios, functional features, technical parameters, operation convenience and other characteristics of the relevant testing and assembly equipment, and the old equipment needs to be upgraded or upgraded. as a result, the company continues to generate new equipment demand. as a qualified supplier of well-known enterprises such as Apple Inc and Microsoft Corp, the company is expected to continue to benefit from the iterative process of consumer electronics products.

Ahead of the layout of 5G RF testing, Qualcomm Inc has become a qualified supplier to verify the company's technical strength. The company aims at the radio frequency testing technology of the fifth generation communications, mainly for the 5G market layout, such as 5G high isolation technology, will complete the corresponding technological breakthrough and reserve before the outbreak of demand in the 5G consumer electronics field, fully prepare for the future according to the technology trend, and has the core technology in the 5G test shielding box. In 2018, the 5G test shielding box has become a qualified supplier of Qualcomm Inc, which fully proves the company's technical research and development strength. At present, based on these technologies, we have effectively communicated with some downstream customers, and have realized the sales of related products.

The equipment research and development of high-precision micro-component sorting system is very effective, and the sales volume can be expected. Zero-component testing technology is one of the company's key breakthrough areas, mainly in the software, optics, microelectronics industry independent research and design of a series of "high-precision", "high-efficiency", "high-quality" optical screening equipment, products include high-precision micro-component sorting system equipment, glass surface defect detection equipment, magnetic ring testing equipment and so on. Among them, the equipment of high-precision micro-component sorting system integrates the functions of visual recognition and inspection, software analysis and screening, using core technologies such as high-resolution size measurement, product correction, real-time capture technology, high-speed classification and blanking, high-speed sequence feeding and real-time high-speed collaborative processing of multi-camera images. The defective products of the patch capacitors, resistors and inductors with a length of only 1 mm can be detected at a speed of more than 6000 pieces per minute, and the missing detection rate is close to zero. This product has been listed as a key new product by the state and local governments, and has been sold, and the quantity is expected in the future.

Maintain a "buy" rating. Under the epidemic, major foreign customers may delay the launch of new products, affecting the short-term demand of the company's products, but we believe that the epidemic has only postponed rather than eliminated the terminal demand. As the global epidemic is gradually brought under control, the sale of new products by customers is expected to rebound, resulting in demand for the company's products and maintaining the company's 2020 performance forecast unchanged, continuing to be optimistic. The company is the leader of domestic RF testing equipment, ahead of the layout of 5G RF testing, is expected to fully benefit from the 5G process. In addition, based on the continuous layout of the business, the new high-precision micro-component sorting system equipment has been listed as a key new product by the state and local, and the sales volume can be expected. It is estimated that the return net profit of the company from 2020 to 2022 is 2.40,3.96 and 578 million yuan, and the corresponding PE is 65,40,27 times respectively.

Risk hints: 5G process is not as expected, market competition risk, downstream customers are more concentrated risk, export income accounts for a larger risk, new product research and development and promotion are not as expected.