Event: Haoyun Technology released its 2019 annual report, with an operating income of 784 million yuan, an increase of 2.50% over the same period last year, a net profit of 154 million yuan, an increase of 10.13% over the same period last year, and a net profit of 148 million yuan, an increase of 13.65% over the same period last year. Of this total, the company's revenue in the fourth quarter was 395 million yuan, an increase of 2.27% over the same period last year, and its net profit was 123 million yuan, an increase of 6.7% over the same period last year. In addition, the project implementation and settlement of the companies affected by the epidemic have been delayed in the first quarter, and the estimated net profit loss is 3900-44 million yuan, and the impact of non-recurrent profit and loss on net profit is about 520000 yuan.

The financial business has developed steadily, and the income of Ping an City and the judicial industry has declined slightly, but the profits have increased significantly:

In 2019, the company's revenue growth mainly came from financial and other industries (including large supermarkets, education and other industries). After 18 years of rapid growth, the growth rate of Ping an City and judicial business slowed, and revenue declined. Specifically, 1) the operating income of the financial sector reached 517 million yuan, an increase of 7.39% over the same period last year, accounting for 65.93% of the annual operating income from 62.93% last year, and the gross profit contributed 63.64%. The main industry continued to consolidate. 2) the revenue of the industry in Ping an city was 101 million yuan, down 26.51% from the same period last year (but revenue from operating services in Ping an City increased by 17.21% year on year), accounting for 12.90% of the revenue, a decrease of 5.1pct compared with 18 years. Nearly half of the revenue came from Chongqing Yubei Project signed in August 2016 and Tongzhou Project signed in November 2017. The recognized income of Chongqing Yubei Project in 2019 is 49.2311 million yuan (the cumulative recognized income accounts for 60.85%) Tongzhou project recognized 5.25 million yuan in the current period (cumulative recognized income accounted for 50.25%) 3) the judicial industry achieved business income of 66.6145 million yuan, down 2.87% from the same period last year, accounting for 8.49% of revenue, slightly lower than 18 years. The business income mainly comes from Runan Technology, a subsidiary. Because the intelligent prison "Judicial Electronic identity Authentication platform for Supervisory personnel" built by UWB technology has been certified by the expert group of the judiciary and is being gradually promoted to the whole country, with the continuous development of judicial business. The judicial sector is expected to contribute new growth points to performance. In terms of profit, the company's overall gross profit margin was 49.53%, an increase of 3.07pct over last year. Among them, the gross profit margin of Ping an City operation business is 49.29%, an increase of 17.18% over the same period last year; the gross profit margin of intelligent judicial business is 73.49%, an increase of 18.28% over the same period last year; we judge that projects with high gross margin and guaranteed payback are selected for the appropriateness of the company to ensure profitability and profit quality. In the future, the company is expected to achieve rapid improvement in performance through further optimization of the product sector.

During this period, the expense rate increased slightly, and R & D investment continued to increase: in 2019, the company's expenditure rate (including R & D) was 24.5%, an increase in 2.04pct compared with the same period last year. Among them, the rate of sales expenses was 8.82%, an increase of 0.76pct over the same period last year; the rate of management expenses was 9.74%, an increase of 0.85 pctMagi's total equity incentive cost of RMB 18.0503 million in 2019. If this part is deducted, the net profit of returning home is about RMB 171 million, an increase of more than 20% over the same period last year; and the rate of R & D expenses is 5.9%, an increase of 0.3pct over the same period last year. The financial expense was 303500 yuan, and the financial expense rate was 0.04%, which increased 0.13pct over the same period last year, mainly due to the increase in interest expenses caused by the company's bank borrowing. In addition, in terms of research and development, the company continues to increase investment in areas such as UWB technology and low-code Wisdom data platform. In 2019, the investment in R & D was 69.1046 million yuan, an increase of 42.82% over the same period last year, accounting for 8.81% of the company's total revenue, which was significantly higher than that in the past 18 years. In addition, the net cash flow of the company's operating activities has exceeded 100 million for three consecutive years, basically covering the amount of net profit for the year.

The UWB industry will usher in large-scale application opportunities, and the company is expected to fully benefit from the first-mover advantage: in the second half of 2019, the UWB technology carried by Apple Inc in iPhone 11 series products attracted the attention of the whole industry. In March 2020, relying on the technical advantages and experience accumulated in the field of UWB for many years, the company successfully joined the FiRa Alliance (Fine Ranging) formed by international giants such as Samsung, Bosch, Sony Group Corp and NXP, and became a member of the global UWB ecological builder. At present, the company has built a series of "UWB wristband +" products based on UWB high precision positioning technology, forming a software and hardware solution of intelligent hardware terminal combination + intelligent management platform; at the same time, using the mode of "UWB wristband + base station" for the intelligent prison to create three platforms of duty command, integrated business management and electronic identity management, and actively explore the application of "UWB+" in finance, nuclear power and power fields. In 2019, the company's revenue from UWB products and solutions reached 63.4121 million yuan, an increase of 222% over the same period last year, accounting for 8.08% of revenue, an increase of 5.51% over the same period last year. In the future, the company will seize the development opportunity of the Internet of things, give full play to the professional advantages of the FiRa alliance, and release the unlimited potential of UWB technology applications.

In-depth cooperation with Huawei and "UWB+ Smart things" have contributed to the steady development of financial business: in terms of financial business, the company has built and is building thousands of bank network monitoring centers, each of which is equipped with the company's smart things platform. at the same time, the company's financial security products and services have been successfully shortlisted again this year for Bank of China Ltd. head office, China China Minsheng Banking Corp head office, Huaxia Bank head office and other units. In 2019, the company reached strategic cooperation with Huawei in the financial field and actively carried out business development in two aspects. one is to build a marginal IoT solution based on the high computing chips provided by Huawei for some partners. to provide new solutions for customers' smart operation, safety management and other new financial couplet needs, and the second is to make use of Huawei's 5G technology and basic cloud platform. Break the existing traditional scheme of local storage, realize the cloud storage of data, and create a new pattern of data storage and computing. In addition to meeting the needs of the industry for financial security, the company has also further explored the needs of banks and other financial institutions for IoT and business management, such as smart IoT, security operation, intelligent operation and risk control, and creatively developed a smart Internet of things data platform 4.0. for example, the company has targeted the "UWB+ Smart IoT" solution for the precise management needs of banking institutions. It solves the problems of real-time monitoring, accurate location management, which can not be solved by traditional monitoring methods, such as video surveillance. On the whole, the company's financial business will continue to develop steadily in 2020.

Ping an city business orders are sufficient, and public safety business strength is further strengthened: at present, Chongqing Yubei and Tongzhou projects, which already exist in the company's Ping an city operation business, are being implemented, and the unrecognized revenue of Yubei project is 93.6206 million yuan. Tongzhou project unrecognized revenue of 42.5855 million yuan, totaling 136 million yuan. In 2019, the company built a multi-dimensional big data platform that combines Ping an City, Xueliang Engineering, face recognition platform, vehicle big data platform, 9XComprehensive Management platform and other platforms to realize the effective fusion of multi-dimensional data. at the same time, the company's holding subsidiary Guanwang Technology (the company's holding subsidiary, Guanwang Technology, achieved a net profit of 10.4063 million yuan in 2019, exceeding the promised amount of 406300 yuan, completing 104.06% of this year's forecast profit. Complete the performance bet. With its leading vehicle identification and vehicle big data technology, it has become a member of the key laboratory of the Ministry of Video Image Intelligent Analysis and Application Technology, further consolidating the strength of the company's public safety business, and the growth of the public safety business sector is expected.

Investment suggestion: we expect the company to achieve operating income of 9.52,12.31 and 1.513 billion yuan and net profit of 1.88,2.44 and 273 million yuan from 2020 to 2022, corresponding to EPS of 0.27,0.35,0.39 yuan and PE of 35X, 27x and 24x respectively, maintaining a "highly recommended" rating.

Risk hint: judicial administration information construction process is not as expected; Runan technology business development is not as expected; UWB technology promotion is not as expected.