Summary of the announcement: (1) the company released its annual report in 2019, its revenue in 2019 was 2.693 billion yuan, down 24.41% from the same period last year; the loss was 1.157 billion yuan, down 314.48% from the same period last year; (2) the company released its quarterly report in 2020, with revenue of 381 million yuan in the first quarter of 2020, down 62.3% from the same period last year; a loss of 59 million yuan, down 144.01% from the same period last year

Revenue has declined, with a large amount of goodwill and a loss for the whole year. According to the annual report for 2019 and the quarterly report for 2020, the operating income in 2019 was 2.693 billion yuan, down 24.41% from the same period last year, the loss was 1.157 billion yuan, down 318.48%, and the comprehensive gross profit margin was 26.74%, down 8.47 pct from the same period last year. Company 2020 Q1 achieved revenue of 381 million yuan, down 62.3% from the same period last year, and a loss of 59 million yuan, down 144.01% from the same period last year. From a business point of view, the company's revenue from Internet of things connections and terminal applications reached 1.395 billion yuan in 2019, down 25.43% from the same period last year, with a gross profit margin of 32.09% and 3.47pct, of which the revenue from car networking products was 551 million yuan, down 11.8% from the same period last year, with a gross profit margin of 29.91%, an increase of 0.34pct, and revenue from police terminals and police information applications was 181 million yuan, an increase of 0.76% over the same period last year. Gross profit margin was 44.93%, down 2.21pct from the same period last year. Revenue from software systems and solutions was 1.116 billion yuan, down 35.34% from the same period last year, and gross profit margin was 17.09%, down 16.54pct from the same period last year. The main reason for the decline in revenue is the adjustment of business structure, the initiative to shrink the business scale of software systems and solutions, and the tightening of PPP and BOT projects; the main reason for the sharp decline in net profit is the company's total goodwill impairment of 1.024 billion yuan in 2019. In addition, Gao Xinxing Union of things fulfilled its performance commitment, with a total performance of 225 million yuan from 2017 to 2019.

Continue to increase investment in R & D and strengthen and improve the management system. From the expense point of view, the company's R & D expenditure in 2019 was 423 million yuan, an increase of 19.19% over the same period last year, of which 2019 Q4 R & D expenditure was 115 million yuan. In 2019, the company's management / sales expenses increased by 54.14% and the company's management / sales / R & D expenses changed by 15.23% compared with the same period last year. We believe that the main reasons for the changes in the company's performance are: on the one hand, the R & D investment in 2019 was 554 million yuan, an increase of 36.48% over the same period last year, which was mainly used for product research and development in the two main waterways. The continuously increasing R & D investment affected the performance. On the other hand, the increase in management and sales expenses compared with the same period last year affected the performance, the company further integrated the group-wide supply chain, managed upgrades, and actively increased market share. We believe that the company's business remains stable, continuous R & D investment to build the company's core competitiveness, the growth of sales and management costs is the only way in the transition period, laying a good foundation for future growth.

The first-mover advantage of the Internet of vehicles is significant, and the vertical integration strategic layout of the "terminal + application" of the Internet of things. In terms of vehicle networking, 5G and C-V2X services were expanded on the original products and technologies in 2019, and the 5G-V2X innovation scheme of Guangzhou Biological Island Intelligent Network United Automobile Project was successfully landed. The self-developed 4G-V2X module completed four-span testing with a number of partners, and officially had the commercial conditions. At the same time, at the end of 2019, the company's 5G module GM800 successfully realized the business test with the existing network 5G base station, becoming the first module manufacturer in China to break through the 5G SA model. In the front loading market, the company actively promotes cooperation with large vehicle manufacturers; in the rear loading market, the company is deeply bound to overseas high-quality customers and is committed to global layout; in the field of electronic license plates, the company is the only manufacturer in the country that has experience in city-level electronic license plate projects, and has landing projects in many major cities in China. We believe that the company will benefit from the growth of vehicle modules in the short term, the construction of vehicle-road coordination infrastructure in the medium and long term, and the application of intelligent driving industry terminals and the operation of cloud computing platforms in the long term.

Investment suggestion: the company will concentrate resources to support the development of the main waterway, increase R & D investment to focus on high-growth vehicle networking and new public security law enforcement business, and achieve full coverage of "vehicle + roadside equipment + solution + application platform". Considering that the vehicle networking industry is still in the stage of increasing investment, adjust the profit forecast downwards. We estimate that the company's net profit from 2020 to 2022 is 78 million, 160 million and 196 million respectively, corresponding to 0.04 yuan / 0.09 yuan / 0.11 yuan respectively, maintaining the "overweight" rating.

Risk reminder events: customer expansion is not as expected risk, Sino-US trade dispute impact, bidding risk may be delayed, market development is lower than expected risk, market systemic risk