Events: The company released its 2019 annual report and 2020 quarterly report on April 29, 2020. The company achieved operating income of 8.849 billion yuan (yoy +4.47%); net profit of 584 million yuan (yoy -27.62%); net profit of 584 million yuan (yoy -27.62%); net profit after deduction of 487 million yuan (yoy +2.72%); and EPS of 0.19 yuan/share. Among them, 2019Q4 achieved revenue of 3.116 billion yuan (yoy -9.86%) and net profit of 170 million yuan (yoy -189.57%). 2020Q1 achieved revenue of 1,727 billion yuan (yoy +5.43%) and net profit of 158 million yuan (yoy +2.38%). The rapid development of medical informatization business has provided effective support for overall revenue: by industry, the company's health industry revenue in 2019 was 1,381 billion yuan, an increase of 25.40% over the previous year, forming the main support for the company's overall revenue growth. At the same time, the share of revenue is also rising step by step. In 2019, the share of revenue reached 15.61%, an increase of 2.61 pct over the previous year. In 2019, the number of orders for 10-million-level projects in the company's medical industry increased significantly. The total amount reached 50% of the total turnover of the medical sector, and the proportion of new customers among contracted customers reached 30%. In the field of smart hospitals, the company added 81 smart hospital users (32 tertiary hospitals). Relying on the high configurability of the company's products and the powerful docking capabilities of the integrated platform, it only took 3 months to complete the integrated deployment of Beijing Friendship Hospital (Tongzhou Campus), greatly shortening the project period; in June 2019, the implementation of the country's first cloud HIS hospital project was completed, and since then, many hospitals have signed contracts to launch Cloud HIS. In the field of smart health insurance, in May 2019, the company successively won the bid for the National Medical Security Administration's medical insurance information platform construction business application software procurement project package 9 application system integration service and the National Medical Security Administration network and security equipment procurement project. As provincial and municipal health insurance informatization began to accelerate, the company, as the “national team” that won the bid for national project construction, has accumulated competitive advantages and is expected to further participate in subsequent local health insurance informatization platform construction projects. At the same time, in the context of the country's strong promotion of DRG payment reform, the company continues to deepen DRG R&D and innovation, relying on existing DRG core grouping technology, and has cooperated with 283 hospitals on DRG projects (12 new DRG customers were added in 2019). In the field of Internet medicine, the company's core brand, Health Love, obtained an Internet hospital license and a telemedicine center practice license in December 19, marking that the company has become one of the few HIS manufacturers in the industry that have built its own self-operated Internet hospitals and obtained a license; by the end of '19, Health had provided patient management services in more than 100 of the top three hospitals in the country; tens of thousands of doctors had settled in the platform, and had managed more than 10 million cases of patients. The financial industry still dominates half of the country, and the government industry has achieved double-digit growth: the corporate finance industry achieved revenue of 4.322 billion yuan. The year-on-year growth rate declined somewhat to 0.57%, and its share of revenue fell 1.89 percentage points to 48.84%. The government industry achieved revenue of 700 million yuan, a year-on-year increase of 16.73%, and its share of revenue increased to 7.91%. Energy, Internet and computer services, communications, and other industries achieved revenue of 10.00, 3.14, 5.73, and 554 million yuan respectively, accounting for 11.30%, 3.55%, 6.48%, and 6.27% of revenue respectively. In addition to other revenue declines over the same period last year (down 14.92%), all other industries achieved slight growth of varying degrees. Gross margin increased slightly, and the health industry's share of gross profit contribution increased: In 2019, the company's overall gross margin level was 27.72%, an increase of 0.96 percentage points over the previous year. By industry, the gross margin of the health industry is 51.09%, and the gross profit level is significantly higher than that of other industries. Profitability is strong. The gross profit contribution reached 28.76%, far higher than the revenue share; the gross margin of the financial industry was 21.19%, up 0.07 pct from the previous year, which remained basically stable; and the gross margin of the energy industry reached 27.50%, up 1.26 percentage points over the same period. The slight increase in the gross margin of various industries and the increase in the gross profit contribution of the health industry jointly contributed to the increase in the company's overall gross margin. Expenses remained stable, and R&D investment remained high: the company's expense ratio (excluding R&D) during 2019 was 10.62%, -1.09pct year-on-year, a slight decrease. Among them, the financial expense ratio was 0.86%, y-0.31pct; the sales expense ratio was 3.89%, the year-over-year +0.42pct; the management expense ratio was 5.88%, y-1.20pct; and the R&D expense ratio was 6.74%, +1.82 pct year-on-year. Of these, financial expenses were $76 million, a year-on-year decrease of 23.21%. The company's R&D expenditure in 2019 reached 1,225 billion yuan, an increase of 20.9% over the previous year, accounting for 13.84% of revenue, and no capitalized R&D investment. R&D expenses were 597 million yuan, an increase of 43.07% over the previous year. The number of R&D personnel was 5,449, an increase of 14.79% over the previous year. Actively increasing investment in R&D while maintaining the stability of various expenses reflects the company's awareness of cultivating core competitiveness and confidence in the broad scope for future development. Goodwill risks have been further released, and the main business has maintained steady growth after deducting the impact of goodwill: the company calculated goodwill impairment preparations of 165 million yuan in 2019, which is lower than the estimated accrual amount announced in the previous performance forecast. In 2019, the company added 56 million yuan in goodwill formed from the merger of Beijing Zhongneng Botai Technology Co., Ltd.. After the current goodwill impairment preparations were calculated, the company's net goodwill balance was 672 million yuan, and the cumulative goodwill impairment loss ratio was 60.96%. Excluding the effects of impairment of goodwill and performance compensation (which only existed in 2018) during the same period, the company achieved net profit of 749 million yuan in 2019, an increase of 11.21% compared to 2018 (660 million yuan), and maintained a growth trend; as goodwill risks are further released, an inflection point in the company's performance is expected to arrive. The Qingdao cooperation project was launched to promote large-scale commercial use of the Pengxiao server: the company is actively expanding the strategic layout and market application of cooperation projects such as the “Pengxiao” server with Huawei. In January 2020, the company and Huawei jointly announced that the first batch of “Pengxiao” servers based on Kunpeng processors had completed the compatibility and adaptation of software and hardware devices, and that the first batch of self-produced servers at the Ningbo base had been used in the municipal affairs cloud center. In February, the company signed a “Strategic Cooperation Framework Agreement” with the Qingdao Municipal Bureau of Industry and Information Technology and the Laoshan District People's Government to jointly build six major sectors, including Donghua Software Qingdao Industrial Park, Donghua Information Innovation Ecological Base, Donghua Yundu and Big Data Center, Internet Hospital, Incubation Base, and Donghua Software Training Base. The company will deploy Laoshan Pengxiao server production and middleware research and development, and related supporting industries in the Donghua Information Innovation Ecological Base. Promoting large-scale commercial use of “Pengxiao” servers in multiple industries and fields has become an important development strategy for the company in 2020. 20Q1 was affected by the pandemic, and revenue and net profit increased slightly: In the first quarter of 2020, due to COVID-19, the company's performance growth rate slowed, achieving revenue of 1,727 billion yuan (yoy +5.43%) and net profit of 158 million yuan (yoy +2.38%), respectively. Gross margin was 31.11%, up 0.30 percentage points from the previous year, and remained basically stable. The cost ratio for the period increased by 0.93 percentage points, mainly due to the increase in the management expense ratio and the financial expense ratio. Among them, the sales, management, and finance expense ratios were 5.84%, 8.33%, and 0.94%, respectively, up -0.03%, 0.67%, and 0.29% year on year. In terms of R&D investment, R&D expenses for the first quarter were 131 million yuan, an increase of 16% over the previous year, and the R&D expenditure rate increased by 0.69pct. Investment suggestions: The company is expected to achieve operating income of 9.704 billion yuan, 10.633 billion yuan and 12.011 billion yuan, and net profit of 775 million yuan, 1,011 billion yuan and 1,245 billion yuan respectively in 2020-2022. The corresponding PE is 51X, 39X, and 32X respectively, maintaining the “highly recommended” rating. Risk warning: risk of cooperation with Tencent and Huawei falling short of expectations; risk of increased competition in medical and financial markets; risk of impairment of goodwill.