Event: The company announced its 2019 annual report. In 2019, it achieved operating income, net profit of 10.508 billion yuan, and 192 million yuan, respectively, an increase of -2.24% and 49.71% respectively; realized net profit deducted from non-return parents of 201 million yuan, an increase of 14.55%; and EPS of 0.85 yuan, an increase of 49.12%. The company plans to send 2.5 yuan for 10 shares, with a dividend rate of 30.06%. Comment: 1. The performance is in line with expectations, and the business upgrade structure is optimized. (1) Main marketing business: Brand customer industry structure has been optimized, and revenue growth has slowed. In 2019, the company's brand marketing achieved revenue of 10.157 billion yuan, an increase of 0.47%, and the growth rate slowed sharply. It was mainly due to the optimization of the industry structure for brand customers, and the marketing budget of automobile customers, which accounted for relatively high levels, decreased year-on-year. The company's automotive brand customers contributed 3.46 billion yuan in revenue, a slight decrease of 1.56% year on year (higher year-on-year growth rate over previous years), and the proportion of brand marketing revenue decreased by 0.7 pct year on year. Among them, GM's marketing budget bucked the trend and increased by 20% (+290 million yuan); the company's beauty/daily chemicals and 3C digital increased sharply year-on-year growth, contributing 1,973 billion yuan and 984 million yuan respectively, respectively, with an increase of 89.92% and 56.51% respectively. Among them, Estée Lauder's marketing budget also increased 98.67% (+888 million yuan), surpassing GM to become the largest company Brand customers, OPPO's marketing budget is 600 million yuan, newly becoming the company's third largest brand customer. In 2020, automotive brand customers were under great pressure due to the impact of the pandemic, and beauty/daily chemical/3C digital/FMCG benefited from the shift in online consumption habits. It is expected that the company's brand customer structure will be further diversified (the share of automobile customers will decline, beauty/daily chemical/3C digital/FMCG). (2) E-commerce business: The company upgrades and optimizes the e-commerce business model, and leverages the rich experience accumulated in the Philips model (online distribution) to further lay out e-commerce agency operations. Distribution model: Mainly Philips buy-out sales. In 2019, the company upgraded and optimized e-commerce business and reduced the buyout sales business, where the model was simple and cash flow was heavily crowded, achieving operating income of 273 million yuan, a decrease of 37.83%. Proxy operation model: Mainly for recolte small household appliances in Japan and OOZOO mask in Korea. In 2019, the company's overseas branch channeled two Japanese and Korean brand agency operation projects, achieving a total revenue of 32.168 million yuan, an increase of 88.73%, net profit is estimated at millions of yuan, and the estimated net profit margin is 10%-15%, far higher than Philips buyout sales and traditional advertiser business. In 2020, the company will accelerate the implementation of brand agency operation projects and business model upgrades. According to the company announcement, in March 2020, it successfully launched the joint venture snack food brand Fun Card (omni-channel operation; priority is expected to be given to launching new channels such as Kuaishou and Douyin). 2. Brand agency operations will be promoted at an accelerated pace in 2020. Based on the service experience of Philips in 2015, the company tested two small to medium brand agency operations in early 2019. In 2020, the company will focus on promoting brand agency operation projects. Previously, the company decided to raise capital to accelerate brand agency operations and develop high-ROE business scenarios. After logic verification, the company was able to quickly replicate successful cases on a large scale. The advantages and entry points of the company's layout and brand management are: (1) Rich experience in cross-media services, focusing on expanding new e-commerce channels such as Kuaishou, Douyin, Station B, and Xiaohongshu. Unlike TP companies that are deeply tied to a single platform (in-site traffic advantage), marketing companies have cross-platform/media service experience (off-site traffic advantage), and the traffic logic of old and new e-commerce channels is different. Old channels such as Jingtao are mainly search bidding, and traditional TP companies have a comparative advantage in linking platforms close to traffic; while new channels such as Kuaijue are mainly content traffic, marketing companies have creative advertising planning and content production capabilities, and have a comparative advantage in content streaming. Therefore, the company will give priority to entering new e-commerce sales channels, accumulate rich experience, and then replicate its operating experience to traditional e-commerce channels such as Beijingtao. (2) Brand customers are rich in resources. The company will focus on transforming existing brand customers, and the business model will be upgraded from advertising monetization to “advertising+sales” monetization. The company has upstream brand owner resources and agency operation capabilities, and has obvious advantages and synergies in entering new business directions. One hundred medium and large brand owners are the natural customer pool for new businesses. According to GMV sharing, the company breaks through fixed advertising revenue and opens up performance boundaries and flexibility. (3) Small and medium brand customers explore diverse cooperation models. The company prioritizes implementation of the joint venture model (the company has a comparative bargaining advantage) and omni-channel operation. The company launched the joint venture brand Fun Card in March, and is currently discussing joint venture models with several brand customers. 3. Focus on the future and seize new 5G traffic. The company's core idea is to provide a full range of services around the growing needs of brand customers, focusing on new 5G traffic to seize emerging entry resources. Previously, the company decided to focus on developing three R&D topics, including the Magellan platform (brand private traffic access and credit exchange), Huayang Vision IoT system, and RCS terminal application research and development. The new traffic portal will promote effective monetization of brand marketing and agency operations, helping to create synergies. Investment suggestions: The company deepens the layout of brand agency operations based on its existing experience in e-commerce operations. In the future, the company will focus on exploring new operating models with large-scale replication capabilities, including new channel agency operation models, joint venture agency operation models, etc. The company's high performance flexibility is expected to be mainly due to brand agency operations and is expected to be fully released in Q2 2020. Given the inflection point in the industry, the company has active transformation demands, and is expected to gain both the company's alpha and industry beta under the changing 5G traffic situation. We expect the company's net profit in 2020-2022 to be 350 million yuan, 500 million yuan, and 60 million yuan, corresponding EPS of 1.52 yuan, 2.16 yuan, and 2.60 yuan (not considering fixed increase projects), 25 times PE in 2020, with a target price of 37.75 yuan, maintaining the “buy-A” rating. Risk warning: Risks such as downstream competition intensity falling short of expectations, new customer development progress falling short of expectations, brand agency business not progressing as expected, and sales budget expansion falling short of expectations.