Incident Zongda Technology released its 2019 annual report and the first quarter report of 2020: achieved operating income of 3,727 billion yuan in the full year of 2019, up 1.95% year on year; realized gross profit of 1,141 billion yuan, down 5.21% year on year; realized net profit attributable to the parent company of 526 million yuan, down 6.16% year on year. The first quarter of 2020 achieved operating income of 932 million yuan, up 2.94% year on year; realized gross profit of 247 million yuan, down 12.52% year on year; realized net profit attributable to parent company of 126 million yuan, up 1.61% year on year. Dianping's comprehensive capacity utilization rate declined in 2019, affecting the company's comprehensive gross margin of 2019. The company achieved operating income of 3,727 billion yuan, up 1.95% year on year; realized gross profit of 1,141 billion yuan, down 5.21% year on year; realized net profit of 526 million yuan, down 6.16% year on year. Achieved a comprehensive gross profit margin of 30.62%, a decrease of 2.31 percentage points compared to the full year of 2018, and a decrease of 0.02 percentage points compared to the fourth quarter of 2019. The decline in the company's gross margin in 2019 was mainly due to the continuous expansion of production capacity at Jiangmen Plant 2, but the original industrial HDI demand was lower than expected, and the company's overall capacity utilization rate in 2019 declined markedly year-on-year. The company has accelerated the introduction of consumer HDI products and other high-end PCB products to achieve the set goals in 2020. We expect the company's overall capacity utilization rate to increase in 2019. The first quarter of 2020 achieved operating income of 932 million yuan, up 2.94% year on year; realized gross profit of 247 million yuan, down 12.52% year on year; realized net profit attributable to parent company of 126 million yuan, up 1.61% year on year. The consolidated gross profit margin was 26.45%, down 4.17 percentage points from the full year of 2018, down 4.68 percentage points from the first quarter of 2019, and 4.18 percentage points from the fourth quarter of 2019. The company's full PCB product line layout. High-end products will gradually enter the mass production stage in mid-2020. Continued optimization of the product line structure and continuous expansion of production capacity will drive the company's rapid growth in the next 2-5 years. Since 2018, the company's product structure has begun to enter a period of improvement. The HDI, rigid-flex board, high-frequency high-speed high-rise board, and flexible circuit board businesses have all made positive progress. Among them, high-frequency high-speed high-rise boards and rigid-flex boards have grown well. The company also participated in domestic FPC manufacturer Sandeguan and carrier board manufacturer Prowin, further improving the high-end PCB product line layout. The company's future production capacity will continue to expand, which may put some pressure on the capacity utilization rate, but the continuous adjustment of the product structure can largely hedge against the downward pressure on gross margin. Profit forecast We expect that in 2020-2022, the company will achieve operating income of 42.37, 4.992 and 6.08 billion yuan, net profit attributable to the parent company of 3.60, 5.06 and 679 million yuan, and the company's latest total share capital of 835 million yuan, corresponding to EPS of 0.24, 0.34 and 0.46 yuan. On April 29, 2020, the latest stock price was 1,694 yuan, with a total share capital of 884 million shares, corresponding to a market capitalization of 15 billion yuan. The 2020-2021 PE is about 45, 32, and 24 times. In the next 3-5 years, the company's entire product chain layout will reflect the effects of mass production model adjustments during transformation. Production capacity expansion and structural adjustment will go hand in hand, and performance will explode. We will still maintain our holdings increase rating. Risk warning: The macroeconomy falls short of expectations, trade conflicts have intensified, and industry competition has intensified.