1. Event Overview On April 27, the company released its 2019 annual report, achieving operating income of 2,206 billion yuan, an increase of 56.23% over the previous year; net profit of the mother was 280 million yuan, an increase of 83.46% over the previous year. The 2020 Quarterly Report achieved operating income of 439 million yuan, an increase of 52.79% over the previous year, and realized net profit of 30.77 million yuan, a year-on-year decrease of 23.32%. 2. Analysis and judgment performance grew rapidly. ROE increased significantly throughout 2019, achieving operating income of 2,206 billion yuan, an increase of 56.23% over the previous year; net profit of 280 million yuan, an increase of 83.46% over the previous year. The actual performance growth rate far exceeded the rapid growth rate. During the reporting period, the company's period expense rate was 14.19%, down 3.32pct from 17.51% in the same period last year. Among them, R&D expenses were 65.47 million yuan, a significant increase of 73.74% over the previous year. In terms of profit margin, gross margin was 24.71%, down 9.46pct year on year. Core business gross margin declined significantly; ROE was 5.76%, up 2.34 pct year on year. The company's net cash flow from operating activities increased by 214.66% year-on-year, mainly due to the expansion of revenue scale and the increase in payment recovery efforts. The company's overall operating capacity continued to improve. Q1 Revenue continued to grow at a high rate, and performance declined slightly. The 2020 quarterly report achieved operating income of 439 million yuan, an increase of 52.79% over the previous year, due to an increase in orders during the reporting period; net profit of 30.77 million yuan was realized, down 23.32% year on year. In terms of performance, the performance of companies affected by the epidemic declined. Among them, Yaguang Electronics' net profit for the first quarter increased 4.39% year-on-year; the boat business was greatly affected, and the sector experienced losses. We believe that the core military electronics business has been affected only by the pandemic, and that high growth in the company's performance can be expected throughout the year. Military electronics is developing rapidly, and is expected to continue to grow rapidly in the future. The military electronics business has become the core sector of the company, including microwave circuits and components and semiconductor devices, such as microwave diodes and crystal triodes, microwave monolithic chips, hybrid integrated circuits, etc. In 2019, the sector achieved revenue of 1,086 billion yuan, up 42.74% year on year; gross margin was 40.75%, down 5.45% year on year. The company disclosed that it signed an order contract for T/R components for array antennas with an institute of CLP, amounting to 85 million yuan, which has already been fulfilled. As military spending in the field of defense informatization continues to rise, and military orders at the end of the 13th Five-Year Plan period are expected to achieve a breakthrough, the company's military industry sector will continue to maintain rapid growth. In addition, the company has already supplied more than 50 products to the low-orbit space constellation project. The core products are in an exclusive supply state, which is expected to benefit from increased demand brought about by satellite communications construction. Shipbuilding received an order, and restorative growth can be expected. In November 2019, the company signed contracts for 5 30-meter coastal patrol vessels with a total value of 88 million yuan. As of the first quarter of 2020, 50% of the contracts have been fulfilled. In 2019, the company's shipbuilding sector achieved revenue of 446 million yuan, a year-on-year increase of 6.26%, and the sector achieved steady growth; the gross margin was 14.25%, a year-on-year decrease of 10.90pct. In addition, the company's green new energy ships have been successfully developed and put into operation in batches, and completed the trial production and delivery of multi-tonnage unmanned boats. As the problem of overcapacity in the shipbuilding sector is gradually eliminated, we expect the company's ship sector to experience restorative growth in the future. Laying out the field of civilian 5G, with broad market prospects, the company focused on power amplifiers. In 2018, it began research and development of a series of power amplifier chips for 5G, such as GaAs power amplifier chips, GaN power amplifier chips, GaN power amplifier tubes, and GaN internal matching modules. At the same time, the company conducted 5G technical cooperation research with a number of universities, and expanded contacts with Huawei, ZTE, and Ericsson. 2019 is the first year of 5G, and the industry is developing rapidly. As the Ministry of Industry and Information Technology and the Political Bureau of the Central Committee recently held meetings on speeding up 5G construction, the company's products are expected to gain broad market space. Implement equity incentives and be optimistic about the company's long-term development. On January 15, 2020, the company announced the 2020 stock options and restricted stock incentive plan. It plans to grant a total of 51.95 million shares of rights to 133 senior managers, core technology (business) personnel, etc., including 48.95 million stock options and 3 million restricted shares. The option exercise price is 7.84 yuan and the restricted stock price is 3.92 yuan/share. The company's interests are tied to the interests of core employees, which is conducive to the long-term development of the company. 3. Investment recommendations The company has achieved a breakthrough in the field of military electronics. The original boat sector still has room for growth in the future. We are optimistic about the company's long-term development. The company's EPS for 2020 to 2022 is expected to be 0.36, 0.50, and 0.69 yuan, respectively, and the corresponding PE is 30X, 21X, and 15X. Comparable companies have an average valuation of 40X, giving it a “recommended” rating. 4. Risk warning 1. Shipbuilding and capacity removal is slow; 2. Product development progress falls short of expectations; 3. There is a risk of volatility in military orders