Main points of investment

Items:

The company announced its financial results in 2019, with revenue of 1.245 billion yuan (- 20.86% YoY) and net profit belonging to shareholders of listed companies of 182 million yuan (1.43% YoY) in 2019. The company intends to pay a cash dividend of 0.8 yuan (including tax) to all shareholders for every 10 shares.

Peace viewpoint:

The short-term economic downward pressure appears, and the organizational structure is adjusted: in 2019, the company achieved revenue of 1.245 billion yuan (- 20.86 YoY), net profit of 182 million yuan (1.43% YoY) belonging to shareholders of listed companies, and net profit of 168 million yuan (- 0.77% YoY) attributable to shareholders of listed companies after deduction. In 2019, the company's overall gross profit margin and net profit margin were 44.43% (+ 10.91pct YoY) and 14.70% (+ 2.99pct YoY), respectively. The increase in the company's gross profit margin is mainly due to an increase in the proportion of revenue from LED video display systems with high gross margins. The overall performance of the company is lower than expected, mainly due to the macroeconomic downturn, and the company's landscape lighting business is lower than expected. From a business point of view, the revenue of LED video display system, intelligent landscape lighting project and network intelligent integration and equipment is 396 million yuan (23.28%YoY), 427 million yuan (- 54.01% YoY) and 362 million yuan (33.13% YoY) respectively, and the revenue proportion is 31.77%, 34.30% and 29.04%, respectively. Gross margins are 57 per cent (6.56pctYoY), 30.76 per cent (7.65pct YoY) and 40.92 per cent (- 2.25pct YoY), respectively. Cost side:

In 2019, the company's financial expense rate, sales expense rate, management expense rate and R & D expense rate were-0.13% (- 0.11pct YoY), 12.62% (3.34pct YoY), 5.90% (1.37pct YoY) and 6.88% (1.16pct YoY) respectively. The organizational structure of the company was adjusted, and the rates of management, sales and research expenses were slightly improved. The company made the LED display business independent. Financial technology and smart lighting business have also been rebuilt according to the structure of business groups, forming an organizational structure with 3 business groups and 11 functional departments as the core.

Optimization of financial technology and LED to build an enabling management platform: the company continues to optimize the layout of LED applications and financial technology: in the field of financial technology, the company complies with the intelligent trend of bank outlets, telecommunications outlets, etc., and increases the development of financial technology business, gradually upgrading from traditional queuing system and lattice display screen to intelligent robot. And for China Telecom Corporation's first wisdom business hall and other customer outlets to provide intelligent products and systems. The company has participated in the implementation of a number of benchmarking intelligent banking projects, and gradually explore new intelligent products and intelligent applications of bank outlets. LED display field: the company adheres to the marketing strategy of large market and key customers, and provides customers with high-quality high-end LED display solutions with innovative technology and stable performance. The company jointly established the "LED screen Film playback system Joint Laboratory" with the China Institute of Film Science and Technology, committed to establishing the technical standard of "China LED screen Film playback system", obtained the projection license of domestic and foreign digital film sources through international certification, and promoted the commercialization of "China LED screen Film playback system". The field of landscape lighting: in 2019, affected by national policies and other reasons, the landscape lighting industry has gradually entered a period of adjustment. The company adjusts the focus of business, strengthens risk control and financial management, has a good cash flow, improves the level of gross profit margin, and lays out the R & D field of smart lamppost system platform in advance. As of March 31, 2020, it is estimated that the total amount of the company's on-hand orders and winning bids is about 900 million yuan.

Investment suggestion: the company continues to cultivate LED display and financial technology business, and actively layout landscape lighting business, optimistic about the future performance flexibility of the company. Taking into account the macroeconomic downturn and the slowdown in the landscape lighting business, we downgrade the company's profit forecast. It is estimated that the company's 2020-2022 net profit vested in the parent company will be 287 million RMB 359 million (the original value of 20max in 21 years is 262pm 336 million yuan), corresponding to the PE of 17-14-11 times, taking into account the company's low valuation, still maintain the company's "recommended" rating.

Risk hint: 1) the risk of contract performance: there is a certain period in the execution of the contract, and it is affected by factors such as unpredictability or force majeure in the actual performance, which may lead to the risk that some or all of the contents of the contract cannot be performed or terminated. 2) the risk that accounts receivable can not be collected on time: most of the company's landscape lighting projects are paid by installments and there is a certain account period, so there is the risk of not being collected on time; 3) the risk of technological progress: in the sports display application system, the requirements of the LED display around the stadium are more stringent, and its corresponding technical content is higher, if the company can not continue to invest in research and development, there is a risk of customer loss. 4) the risk of trade friction: due to the instability of the international political and economic environment in recent years, there is greater uncertainty in some of the company's overseas markets, such as the North American market, especially the recent changes in Sino-US trade policy. if the trade protection policy is gradually implemented, it may have a certain impact on the company's business in North America.