The incident company released its 2019 annual report, achieving operating income of 1.39 billion yuan, a year-on-year increase of 16.2%; realized net profit attributable to shareholders of listed companies of 198 million yuan, a year-on-year decrease of 3.5%; realized basic earnings per share of 0.32 yuan, a year-on-year decrease of 3.0%; and achieved ROE of 10.0%, a year-on-year decrease of 0.7 percentage points. Brief review The company's revenue grew steadily, and the net profit declined slightly due to large impairment losses combined with increased investment costs in new business. In 2019, the company achieved operating income of 1.39 billion yuan, an increase of 16.2% over the previous year, and net profit of 198 million yuan, a slight decrease of 3.5% over the previous year. On the cost side, sales expenses were 82.37 million yuan, an increase of 12.8% over the previous year. The increase was comparable to the increase in revenue. Management expenses were 94.76 million yuan, up 25.9% year on year; R&D expenses were 61.39 million yuan, up 42.8% year on year. The increase in management expenses and R&D expenses is mainly due to the company's focus on product innovation. New products such as aluminum-plastic film, PC/PMMA composite sheets, and quantum dot films require early investment in manpower and financial resources. Financial expenses were 5.34 million yuan in '19 and -9.37 million yuan in '18, mainly due to increased short-term loans. The company's net cash flow from operating activities in 2019 was -282 million yuan, a year-on-year decrease of 305.6%, mainly due to the company's investment in the construction of the Hangzhou R&D Center and the Daoming Security Small and Micro Park project. The company's non-recurring profit and loss in 2019 was 56.11 million yuan, mainly due to receiving government subsidies of 21.13 million yuan and compensation for gambling on the performance of Warwick New Materials of 37.48 million yuan. The company's asset impairment losses in 2019 were 74.78 million yuan, and credit impairment losses were 9.5 million yuan. Among them, asset impairment losses were mainly due to impairment of goodwill accrued against Warwick New Materials and impairment preparations for long-term equity investments in Beijing Sunshine World and Nanjing Midet. Excluding the impact of impairment losses, the company's net profit after deducting non-refunded net profit in 2019 could reach 226 million yuan. Revenue from license plate films and micro-nano prism films continues to increase, and domestic replacement is accelerating. The company's core business is reflective materials, which are divided into four sectors: personal safety protection materials and products, vehicle safety protection and products, glass microbead road safety protective materials and products, and micro-nano prism reflective materials and products. At the same time, it is equipped with high-performance release materials according to production process requirements. In 2019, the company's license plate film and semi-finished products achieved sales revenue of 255 million yuan, an increase of 30.1% over the previous year, and achieved a market share of nearly 30%. Due to increased environmental requirements, vehicle management offices in several provinces have begun bidding for semi-finished license plate products. Compared with license plate films, the value of the semi-finished products has doubled, and they have higher profitability. In 2019, China's automobile sales volume was 25.77 million units, and the volume of used car transactions was 14.92 million, for a total of 40.69 million vehicles. The corresponding market size of semi-finished license plate film products was about 7-800 million yuan. The printing technology used for the green-backed black license plates used in domestic new energy vehicles is hot stamping technology. Its selling price is 40-50% compared to traditional license plate films. The gross margin is as high as 70%, and the profit profit of a single set of hot stamping license plate films will double. Currently, the State Council has established relevant policies to stimulate automobile consumption and promote the growth of new energy vehicles. It is expected that domestic automobile production and sales will bottom out and rise, and the corresponding license plate film market size will expand further. Furthermore, the new national standard for electric bicycles is enforced, and electric bicycle license plate management is expected to be standardized and unified across the country, which will become an additional number of license plate films. In 2016, the company's micro prism reflective film project was completed and put into operation, becoming the first domestic company and the fourth in the world to achieve independent design and mass production of micro prism reflective film products. In 2019, the company achieved sales revenue of 267 million yuan for microprism-type reflective films and products, an increase of 46.8% over the previous year. Revenue growth is mainly due to the company's active attention to construction bidding projects all over the country, timely reporting and integration to improve combat capability. At the same time, the company's business model was transformed into a “one-stop solution provider for reflective materials”. Compared with the agent model of foreign companies, it can respond more quickly to customer needs, make customized arrangements according to customer needs, and optimize the customer structure while increasing customer recognition, thereby increasing market share. Currently, the domestic microprism-type reflective film market is about 3 billion yuan, and the company's market share is about 10%. Nearly 90% of the market is still monopolized by US and Japanese companies such as 3M. In the future, with technological innovation and localization of upstream key raw materials, unfriendly relations between China and the US and the blockage of supply in the global industrial chain will accelerate domestic substitution, and TD's market share will increase accordingly. Affected by the epidemic in 2020, China's economic growth is clearly under pressure. As an important driver for steady growth, domestic infrastructure has entered the “fast track”. Highways, national highways, and more and more urban road traffic signs will begin to be produced using microprism-type reflective films with better performance, stimulating incremental market demand for microprism-type reflective films. The optical film business is temporarily under pressure, and multi-channel expansion strives to restore performance. In 2019, Warwick, a wholly-owned subsidiary of the company, achieved sales revenue of 201 million yuan for new materials brightening film products, a year-on-year decrease of 17.6%. Competition in the LCD TV and display panel industry for downstream terminal products has intensified in the past two years. Consumption in the black home appliance industry is weak. The sharp drop in prices of consumer LCD display products, especially TV products, has reduced the profit of the overall upstream supply chain of the industry. At the same time, the industry was adversely affected by LeTV, profit margins declined, and cost pressure was transmitted upstream. As a result, the sales price of brightening film, the main product of Warwick New Materials, was reduced, and Warwick's customer structure was adjusted during the reporting period, leading to a decline in brightening film performance. In order to expand its business, Warwick achieved mass production through independent research and development. In 2019, it added high-end quantum dot film sales to obtain sales revenue of 10.39 million yuan. Currently, the price of the company's quantum dot film products is low. At the same time, due to the high price of imported raw materials such as quantum dot concentrates and barrier films, the fixed cost per unit is too high, and product sales have lost money. While the company is negotiating with existing downstream customers and striving to adjust sales prices, it is also actively expanding the market and sending samples to other downstream customers. The price of quantum dot film will rise somewhat in the future. In addition, the company currently still uses imported barrier films and quantum dot concentrates, but with the increase in future procurement volume and the emergence of competing raw materials, the production cost of quantum dot films is expected to drop. The 2020 pandemic caused the cancellation of major events and the decline in demand for terminals such as downstream TV and TV, which will have a certain impact on Warwick's performance. However, in the future, with the improvement of the global epidemic and the recovery of the global consumer electronics industry, the company's optical film performance will recover rapidly due to the domestic industry advantages of the transfer of global LCD panel production capacity to mainland China, as well as the advantages of Warwick and its subsidiary Juntong's own integrated industry chain. New endogenous businesses continue to invest, and are ready to go. After nearly 10 years of R&D and technology accumulation to successfully break through foreign technology monopolies, the company achieved independent R&D and mass production of micro-nano prism-type reflective films in 2016, and achieved huge profit growth. Through further endogenous growth, the company expanded aluminum-plastic film business through independent research and development in 2017, developed PC/PMMA composite sheet business in 2019, and entered the back market of the 5G mobile phone industry chain. The company's aluminum-plastic film business achieved sales revenue of 51.09 million yuan in 2019, an increase of 19.7% over the previous year. Aluminum-plastic film is one of the key links with the highest barriers in the lithium battery industry chain. It is also the last key core component material that has not yet been replaced by domestic production. Global market share and technology are still monopolized by Japanese and South Korean companies, and domestic products account for less than 5%. The company signed a framework cooperation agreement with Tianjin Lishen in 2019, representing that the company's aluminum-plastic film products were recognized by leading domestic enterprises. Currently, the company's aluminum-plastic film sales are mainly consumer electronics, and it has obtained a certain amount of sales revenue in the field of power batteries. In the future, the company will vigorously promote aluminum-plastic film products in the field of power lithium batteries, promote the rapid development of aluminum-plastic film business, and contribute new profit growth points to the company. The 5G era is coming. Due to the needs of 5G communication, wireless charging, NFC and other technologies, the market has put forward new requirements for mobile phone backplane materials. PC/PMMA composites have become the first choice for popular 5G mobile phone back cover materials with their glass-like effects and cost advantages. According to the current pace of 5G development in China, it can be seen that the relevant market capacity is huge, and there is considerable room for business improvement. Currently, the PC/PMMA composite sheet market share is mainly occupied by foreign companies such as Sumitomo Chemical and Teijin of Japan. In China, only Sichuan Longhua Film and other companies participate in production, and domestic products do not account for a high share of domestic products. In January 2019, the company added an optical-grade PC/PMMA co-extrusion film/sheet production line construction project with an annual output of 10 million square meters. Currently, imported production equipment has been installed and commissioned, and has produced small-batch products for downstream customers to test. The main target customers are well-known domestic mobile phone back cover manufacturers such as Tongda Holdings, Intelligent Power, and Jinrui New Materials. In addition to being used in 5G mobile phone backboards, PC/PMMA composite panels can also be used in automotive interiors and smart homes, with a wide range of downstream applications. With the company's PC/PMMA production line officially put into operation, it is expected that sales revenue will contribute to performance growth in 2020. Summary: The company takes reflective materials as the core, and the rapid growth of popular products such as license plate film and microprism film provides stable revenue for the company. In addition, the company developed aluminum-plastic film and PC/PMMA composite panels through endogenics, and expanded the optical film business through external acquisition of Warwick New Materials. Although a large amount of R&D investment and project construction for new products affects the growth rate of the company's performance in the short term, in the long run, the company is positioned in various high-end fields. In the future, when the new product market expands and production capacity is fully released, the company's performance will show an extremely impressive increase. Profit forecast and valuation: In light of the impact of the pandemic on domestic and foreign economies, future profit forecasts have been lowered. The company's net profit for 2020, 2021, and 2022 is estimated to be 2.66 (previous value: 3.05), 3.79 (previous value: 4.05), and 469 million yuan respectively. The corresponding EPS is 0.43, 0.61, and 0.75 yuan, respectively, and the corresponding PE is 18.2X, 12.8X, and 10.3X respectively, maintaining the “buy” rating. Risk warning: The development of the epidemic is uncontrollable, project commissioning falls short of expectations, and downstream demand falls short of expectations.