Event: the company announced on April 28 that its 2019 revenue was 2.592 billion yuan (+ 10.00%), its net profit was 43 million yuan (- 58.02%), its gross profit was 22.02% (- 0.94pcts), and its net profit was 3.99% (- 2.91pcts). The revenue of Q1 in 2020 is 147 million yuan (- 54.04%), the net profit is-34.9808 million yuan (- 90.40%), the gross profit is 33.97% (+ 4.72pcts), and the net profit is-30.52% (- 28.29pcts).

Main points of investment:

The company's power supply business has become the main growth point of the company's revenue, and the significant decline in the profitability of the security technology business has led to a decline in the overall return net profit of the company.

In 2019, the company finished its major asset restructuring and completed the acquisition of Aerospace Chaoyang Power Plant. at the same time, the company continued to optimize its industrial structure and continuously strengthen market development. The company's operating income (2.592 billion yuan, + 10.00%) and gross profit (571 million yuan, + 5.50%) achieved steady growth, but the company's return net profit (43 million yuan,-58.02%) and deducted non-return net profit (- 37 million yuan) -158.70%) there has been a large decline.

Specifically, in terms of the company's four major businesses, the revenue from the security technology business (1.492 billion yuan, + 3.57%) increased, while the gross profit margin (10.22% lime 2.69pcts) decreased. The company's subsidiaries Changfeng Science and Technology, Changfeng Kefa and Aerospace Jingyi, as the main body of the security science and technology business, the net profit in 2019 fell by 1003.01%, 317.84% and 36.75% respectively compared with the same period last year. As the security technology business accounts for the highest proportion of the company's revenue, we believe that the sharp decline in the net profit of the company's security technology business is the main factor leading to the decline in the overall net profit of the company. the company disclosed that the operating losses of Changfeng Technology and Changfeng Kefa were due to the continuous reduction of gross profit margin due to the fierce market competition environment and the increase of related management costs and R & D expenses. The decline in the profit of Aerospace Jingyi is mainly due to the decline in project profit margins caused by increased investment in R & D. at the same time, the main customers (prefectural and municipal public security bureaus and political and legal units) are affected by factors such as personnel adjustment of government departments, resulting in delayed acceptance of some projects and delayed revenue recognition. The power business income mainly comes from the company subsidiary Aerospace Burke and Aerospace Chaoyang Power acquired by the company in 2019. In 2019, the company's power business income (638 million yuan, + 40.78%) grew rapidly, becoming the company's second largest source of revenue. It is also the company's main revenue and profit growth point in 2019. The revenue growth rates of Aerospace Burke, which is mainly engaged in industrial power supply, and the main integrated power supply and module power business are 41.59% and 16.70%, respectively, and the net profit growth rates are 28.93% and 34.39%, respectively. the overall gross profit margin of the power business (44.28%), -1.32pcts) showed a slight decline, which we believe is mainly due to an increase in the share of industrial power revenue with low gross profit margin. The revenue from the electronic information business (302 million yuan,-2.03%) decreased slightly, while the gross profit margin (31.22% quotation 3.34 pcts) increased, of which the income of Changfeng Kewei, a subsidiary of the company, grew steadily (241 million yuan, + 14.71%), and the net profit (64 million yuan, + 29.55%) increased rapidly. The medical device business income (140 million yuan, + 5.40%) maintained a steady growth, but the gross profit margin (23.02% quotient talk 9.81pcts) declined significantly, reaching a new low since the company went public. We believe that the main reason may be the small scale of the company's medical device business, the market promotion stage, weak market competitiveness and increased R & D costs and other factors.

In addition, the company's subsidiaries Aerospace Burke and Aerospace Chaoyang Power both exceeded their performance commitments in 2019, with net profit commitments of 72 million yuan and 85 million yuan respectively in 2020 and 2021. With 2020 being the closing year of the 13th five-year Plan, military orders may be concentrated on the ground, and the revenue of Aerospace Chaoyang Power supply has maintained steady growth in the past three years. We expect that the aerospace and military power business involved in Aerospace Chaoyang Power supply will become the main growth point of the company's revenue and net profit in the future. While the company's subsidiary Aerospace Jingyi 2019 performance commitment completion rate (52.21%) and the cumulative completion rate in the past three years (82.03%) are not up to the standard. According to the performance compensation agreement, the original shareholders of Aerospace Jingyi are required to compensate the company for shares. At present, the company has disclosed that it will repurchase the shares that should be compensated by the Aerospace Jingyi performance compensation obligor at a total price of RMB 1 and cancel it, and recover the cash dividend income.

Q1's revenue (147 million yuan,-54.04%) and home net profit (- 34.9808 million yuan,-90.40%) declined significantly in 2020, mainly because the company implemented the income criterion for the first time in 2020 and no longer recognized income for performance obligations that did not meet a certain period of time. At the same time, affected by the epidemic, customers returned to work late, and the demand for orders decreased. We expect that with the improvement of the domestic epidemic situation, the company's full-year net profit is expected to resume growth.

The company increases investment in research and development of medical devices and security technology, and the high growth rate of accounts receivable in security technology business should be paid more attention to.

In terms of expenses, in 2019, with the company's efforts to expand the market, the rate of sales expenses (5.98% score 0.79pcts) and management expenses (7.38% score 0.45pcts) increased. At the same time, due to the increase in bank borrowing and interest expenses, financial expenses (9.8761 million yuan, + 346.49%) increased significantly. In addition, the company's R & D expenses (74 million yuan, + 56.49%) showed a rapid growth. The main reason is that the company has increased its investment in the research and development of medical device products and the command cloud system innovation and industrialization project carried out by its subsidiary Changfeng Technology.

In terms of cash flow, the net cash flow growth rate of the company's operating activities reached 480.27%, mainly due to the strengthening of the collection of accounts receivable and the increase in rebates, but from the perspective of the company's accounts receivable in 2019, the growth rate of accounts receivable (1.09 billion yuan, + 42.36%) still exceeds the growth rate of income, of which the book value of customers in the security technology business accounts for more than 55%, a growth rate of 27.22%. Much faster than the growth rate of revenue from the security technology business. In addition, of the credit impairment loss (44 million yuan) mainly composed of the loss of bad debts of accounts receivable (35 million yuan) in 2019, the new provision for bad debts of customers in the security technology business was 26 million yuan, accounting for 74.29% of the loss of bad debts of the company's accounts receivable. To sum up, we think that the income of some of the company's security technology projects can not be recognized due to the delay in acceptance. At the same time, the large loss of bad debts in the business is the main internal reason for the decline in the company's net profit in 2019, although Q1 company washed back some project receivables in accordance with the new accounting standards in 2020, and the company's accounts receivable dropped to 687 million yuan. however, the amount of accounts receivable in the company's security technology business is still worthy of attention. In terms of other financial data, as the company withdrew some inventory corresponding to unrecognized income items in accordance with the new revenue criteria, Q1 company inventory (966 million yuan, + 265.00%) increased significantly in 2020. it is expected that the company's inventory will gradually cash in to the performance with the progress of the company's project revenue recognition.

Security technology business may continue to expand, and power supply business is expected to improve the company's profitability.

The company is a high-tech listed company based on China's aerospace high-end technology and application achievements, with aerospace military enterprises as the background. The Defense Technology Research Institute of Aerospace Science and Industry Group is the actual controller of the company. In 2019, after completing the acquisition of Aerospace Chaoyang Power supply, the company formed four business sectors: security technology, medical devices, electronic information and power supply. Related to the safe city, large-scale event security, emergency stability maintenance, homeland security, key prevention and control, intelligent transportation, police information, intelligent buildings, medical devices, medical information, operating room engineering, UPS power supply, EPS power supply, module power supply, switching power supply, special computers, infrared optoelectronic products and other business areas.

① Security Technology Business

As a leading complex large-scale system planning and design integrator in the field of domestic security technology, the company provides users with overall solutions of related technologies and services with technical consulting, product development and system integration as its main business model. business involves public security, political and legal, border and coastal defense and other fields. In the field of public security business, the company takes self-developed big data, GIS and command and dispatching products as the core, has two main business lines of large-scale event security and command and dispatching, and expands its application in intelligence, public security, transportation and anti-terrorism business. In the field of political and legal business, the company deeply integrates the political and legal commissions, courts, procuratorates and judicial platform systems to form a major political and legal business system with network connectivity, data integration and business connectivity; in the field of border and coastal defense business, the company undertakes the construction of border and coastal defense monitoring centers and video surveillance stations, and completes a number of national border and coastal defense pilot projects. Changfeng Technology and Zhejiang Changfeng, subsidiaries related to the company's security technology business, are positioned as the company's security technology field system solution design and development platform, project system integration platform, general product marketing and service platform; Aerospace Jingyi is positioned as the company's security technology field business application research and development, software development and service platform.

In 2019, the newly signed contracts in the company's security technology industry totaled 2.423 billion yuan, and 54 projects with a level of more than 10 million were signed, accounting for 74% of the total number of newly signed contracts for the whole year. The key projects are progressing smoothly, and the system integration capability of large-scale projects has been further consolidated as the company's core advantage. At the same time, the company has increased its R & D investment in the command cloud system innovation and industrialization project carried out by its subsidiary Changfeng Science and Technology. On April 1, 2020, the company revealed that the smart new command cloud platform of Aerospace Jingyi has been certified by Huawei, laying a solid foundation for further cooperation between the two sides under the general trend of localization.

We believe that since the main customers of the company's security technology business are local public security and political and legal departments, the company's military industry and central enterprise background is conducive to the company's expansion in this market. however, at present, the company's security technology business is still based on system integration services and application software. in the fierce market competition environment, it is easy to be squeezed by the upper and lower reaches of the industrial chain, resulting in a decline in gross profit margin. At the same time, there may be a long approval process in government departments, and the delay in project delivery and acceptance will lead to certain fluctuations in the performance of the company's security technology business. Therefore, we expect that the company's gross profit margin may fluctuate while the company's security technology business revenue continues to grow in the future. We suggest that we should pay attention to the future extension of the company in the upper and lower reaches of the industrial chain and the payback process of the company's projects.

② power service

In terms of power supply business, through the acquisition of Aerospace Chaoyang Power supply in 2019, the company expanded the integrated power supply and module power business on the basis of the subsidiary Aerospace Burke industrial power supply business. at present, the company's power supply business mainly focuses on military and industrial grade UPS power supply, voltage stabilized power supply, constant current power supply, pulse power supply, filter and other power modules and power related products. The products cover aerospace, marine, locomotive, communication, industrial control, light industry, heavy industry and scientific research and other fields, especially play an important role in the scientific research field that requires high reliability of power supply system. At the same time, it is also one of the few domestic manufacturers that can develop and manufacture high-power UPS power supply and EPS power supply at the same time. In 2019, the newly signed contract value of the company's power supply industry exceeded 600 million yuan, especially in the market expansion of high-speed projects and railway projects.

We believe that with 2020 as the end of the 13th five-year Plan, many major aerospace projects are about to be carried out, and in recent years, under the background of the army's vigorous implementation of actual combat training and the rapid development of weapons and equipment construction, missiles and other aerospace weapon systems as expendable weapons, the procurement demand for aerospace and military weapon systems may increase rapidly in the future, and the market for supporting products of aerospace and military weapon systems is expected to expand. On the one hand, the company's new aerospace and military power business in 2019 is expected to expand a larger market share in the context of the rapid growth of national defense, military, communications and other market demands. on the other hand, the high gross profit margin of aerospace and military power will help to improve the decline of the company's overall profitability caused by fierce competition in security technology. The power supply business may become an important profit growth point for the company in the future.

③ electronic information service

The company's electronic information business is mainly for the development, production and sales of special computers and infrared optoelectronic products. Infrared optoelectronic products mainly focus on a variety of infrared detectors to carry out infrared photoelectric detection product design, development and production. In terms of infrared imaging products, the company has accumulated experience in optics, structure, hardware, software and image processing algorithms for many years. It has strong design and customization development capabilities such as high-quality infrared optics, low-noise and high-integration infrared imaging circuits, high-sensitivity infrared imaging system integration and so on. In 2019, the newly signed contract value of the company's electronic information industry exceeded 300 million yuan, and infrared imaging equipment was successfully introduced to the market. At the same time, it launched the research and development and production of a number of products, and gradually expanded the business field. We believe that under the background that the current domestic infrared optoelectronic market is in a period of rapid development, Fengkewei, the company's main manufacturer of infrared imaging products, has achieved steady growth in income and profits in 2019. The company's electronic information business revenue and profitability are expected to achieve a steady improvement.

④ medical device business

In terms of medical equipment, the company is a "digital integrated operating room solution supplier" integrating operating room products (anesthetic machine, ventilator, operating bed, operating lamp, hanging tower, hand-held ultrasound), operating room purification engineering and digital integrated operating room engineering, and is a medical device manufacturer with CE certification of EU products to the international market. In 2019, the newly signed contracts in the company's medical device industry totaled 166 million yuan, an increase of 22.5% over the same period last year. The amount of newly signed contracts in purification engineering and digital business increased by more than 70% year-on-year, a record high. At the same time, the company has also increased its investment in medical device product research and development.

At present, the spread of COVID-19 epidemic in the world has not yet ushered in a clear inflection point, the market demand for ventilators is growing rapidly. In April 2020, the first Department of equipment Industry of the Ministry of Industry and Information Technology went to the company to investigate ventilators and other key quality and safety control. From the current disclosure of the company, the severe ventilator Athena 8500 developed by the company is currently in the product registration stage, has not yet obtained the Chinese medical device product registration certificate, has not yet been mass produced, and has not formed actual sales in China. At present, the ventilator model produced by the company is mainly ACM812A emergency transfer ventilator, which only has basic respiratory support function and can not meet the more complex clinical respiratory support needs of critically ill patients. In 2019, the sales income of this model is about 3.25 million yuan (unit price is about 16200 yuan), accounting for only 2.32% of the company's medical device business income. Therefore, we analyze that, judging from the scale of the company's medical device business, the company's medical device business is still in the expansion stage. The growth of demand for medical equipment such as ventilators caused by COVID-19 epidemic has a certain positive impact on the company's medical device sales, but the impact may be limited. We expect that with the gradual promotion of the company's medical device digital integrated operating room solution, the company's business market scale is expected to be expanded.

Note: since the actual controller of the company and the target company of the asset reorganization transaction completed in 2019 is the Aerospace Science and Industry Defense Technology Research Institute, this transaction is a business merger under the same control. The company has adjusted the financial data for 2019 and 2018, which is different from the 2019 quarterly report and semi-annual report disclosed by the company, in order to ensure comparability. The 2019 financial data and 2018 data used in the analysis of this report are the adjusted financial data of the company's 2019 annual report.

Investment suggestion

We believe that the company, as a listed company platform of the Defense Technology Research Institute of Aerospace Science and Industry Group, has the background of central military enterprises and profound technology accumulation, although in 2019, the company's main source of income security technology business was caused by the decline of gross profit margin caused by fierce market competition, project acceptance delays and the growth of R & D costs and other factors led to a significant decline in the company's overall net profit. However, we believe that the rapid development of the company's industrial power business and the new aerospace military power business with high gross profit margin are expected to continue to improve the company's overall profitability. Under the background that the domestic infrared optoelectronic market is in a period of rapid development, the income and profitability of the company's electronic information business are expected to improve steadily. The increase in demand for medical devices caused by COVID-19 's epidemic situation may lead to an increase in the sales revenue of the company's related medical equipment to a certain extent. The gradual promotion of the company's digital operating room solution for medical devices is expected to promote the growth of the income level of the medical device business sector. While the company's security technology business revenue maintains steady growth, the gross profit margin is still likely to fluctuate. It is suggested that attention should be paid to the future extension of the company in the upper and lower reaches of the industrial chain and the company's project payback process.

Based on the above point of view, we estimate that the operating income of the company from 2020 to 2022 will be 2.897 billion yuan, 3.335 billion yuan and 3.879 billion yuan respectively, the net profit will be 44 million yuan, 71 million yuan and 89 million yuan respectively, and the EPS will be 0.10,0.16,0.20 yuan respectively. The current share price corresponds to 183,114,90 times PE respectively.

Risk tips: the company's security technology business revenue recognition progress is not as expected, and the gross profit margin is volatile; military equipment procurement has a certain periodicity; medical device market promotion is not as expected.