The company released its 2019 annual report and 2020Q1 quarterly report, with revenue of 980 million yuan in 2019, + 22% year-on-year, net profit of 31 million yuan, revenue of 250 million yuan and net profit of-5 million yuan, mainly due to the impact of periodic epidemic. In the future, the company plans to absorb and merge Wandemo Acoustics to realize the layout of acoustic components + whole machine industry chain. The ODM business benefits from the outbreak of intelligent audio industry, and its own brand business is expected to become a leading domestic acoustics brand. We estimate that the EPS of listed companies in 2020-2022 will be 0.27Universe 0.41, maintaining a "buy" rating.

Total + ten thousand demons cooperate to show, 2020Q1 performance loss is mainly due to the epidemic situation and the impact of asset impairment. The company released the 2019 annual report and 2020Q1 quarterly report, the income in 2019 was 980 million yuan, + 22% compared with the same period last year, and the net profit returned to the mother was 31 million yuan, + 44% compared with the same period last year. Considering the impairment loss of assets of 24 million yuan, the company actually made a net profit of 55 million yuan. We believe that the company's traditional acoustics main business and Magic Acoustics TWS business have a strong synergy between the upstream and downstream of the industrial chain, which is gradually emerging since Mr. Xie Guanhong, the real controller of the company, actually controlled the company at the end of 2017. From a quarterly point of view, the company's 2019Q4/2020Q1 income is 2.9 billion yuan, which is 3.5% compared with the same period last year, and the net profit is 0.14 million yuan, which is mainly due to the impact of the previous epidemic. At the same time, the impairment loss of Q1 assets reached 10 million yuan.

The gross profit margin fell to 15.5%, and the cost side continued to control efficiently. In 2019, the company's gross profit margin is 23.9%, year-on-year-1.4pcts. From a quarterly point of view, 2019Q3-2020Q1 is 26.5%, 19.5%, 15.5%, respectively, mainly due to the upstream and downstream synergy between the company and Monsters. On the other hand, the cost side of the company continues to narrow. In 2019, management + sales + financial expenses totaled 112 million yuan, year-on-year-5.2%, expense rate 11.35%, year-on-year-3.3pctspctsd2020Q1 fee rate further reduced to 7.54%, year-on-year-5.2pcts. In addition, the company's operations continued to improve. In 2019, the asset turnover increased by 0.13 to 0.86, and the turnover days decreased by 75 days to 418 days; inventory turnover increased by 0.41 to 3.63, and the turnover days decreased by 13 days to 99 days.

Intelligent audio is still an incremental market, and the certainty of the growth of ten thousand demons acoustics business is high. Magic Acoustics TWS core business progress is relatively smooth, the previous release of XIAOMI Air2s (399 yuan), OPPO Enco W31 (299 yuan) is also the company's supply of products. This year is still the year of expansion of Mandemo Acoustics TWS business. Downstream customers include mainstream brands such as XIAOMI, OPPO and Huawei (indirect supply). Xiaomi end company only supplies 1999399 and other middle-end products, which is expected to ship 50% to about 1.5 million units in 2020 compared with the same period last year; OPPO end company supplies Enco Free (RMB 699) and W31 (RMB 299), and is expected to ship 100-2 million units this year, and further cut into its low-end products, estimated shipments of 5 million units Huawei end, the company shipped in the form of core components, including FreeBudlite (399 yuan) and FlyPods youth version (399 yuan) products, is expected to double to about 3 million units in 2020. On the whole, we estimate that the TWS products of Magic Acoustics in 2019 / 2020 are about 3 million and 10 million respectively (including acoustic components), and the business income of TWS components and complete machines of Magic Acoustics reaches RMB 6-7 and 15-1.6 billion respectively.

Continue to promote the merger of ten thousand demons acoustics, and it is expected that 2020Q3 will report again. The company continues to promote the absorption and merger plan of Magic Acoustics, and will subsequently request the shareholders' meeting to extend the absorption and merger plan for 12 months from the date of expiration of the resolution of the previous shareholders' meeting (expected to be May 2020 to May 2021). The previous absorption and merger plan of the company was rejected by the CSRC, which is mainly due to (1) insufficient disclosure that the actual controller of the underlying assets has not changed in the past three years, and (2) the underlying asset sales and profit sources are highly dependent on related parties. According to the company announcement, the real controller of the underlying asset (i.e. Magic Acoustics) has been Mr. Xie Guanhong immediately since 2013. Before June 2017, financial investors held a majority of board seats due to shareholding ratio, but did not actually control the underlying assets; after June 2017, the company dismantled its overseas investment structure. Mr. Xie Guanhong began to hold a majority of board seats (5x8). Looking forward to the follow-up, we believe that listed companies are expected to restart the absorption and merger plan in 2020Q3, and Wanmao + Gunda Synergy will open up a new growth space for the company in the future.

Risk factors: the risk of absorbing and merging the uncertainty of magic acoustics; the intensification of industry competition; the promotion of new products is not as expected; research and development is not as expected.

Investment suggestion: we predict that the net profit of the company's headquarters in 2020-2022 will be 0.5Universe 0.08 million yuan, and the net profit of Wanmao acoustics will be 2Universe 3.4 million million yuan. Assuming that in 2020, due to the early epidemic factors, we will adjust the 2020-2021 preparatory examination EPS to 0.27exp 0.44 yuan (the original forecast is 0.37 Universe 0.48 yuan), and increase the forecast for 2022 to 0.55 yuan. Based on the valuation of the exam preparation, we give the merged company 30 times the target PE in 2021, corresponding to the target price of 13.34 yuan, maintaining the "buy" rating.