Event: Shangwei released its 2019 annual report. During the reporting period, the company realized revenue of 2.034 billion yuan, an increase of 29.10% over the same period last year; net profit of 104 million yuan, an increase of 78.82%; basic earnings per share of 0.20 yuan per share, an increase of 81.82% over the same period last year; weighted average return on net assets of 7.09%, an increase of 3.04pcts over the same period last year The net cash flow generated by operating activities was 53.4497 million yuan, compared with-216 million yuan in the same period in 2018. In addition, the company released its quarterly report for 2020. During the reporting period, the company realized revenue of 206 million yuan, down 52.73% from the same period last year, and realized net profit of-15.0474 million yuan, down 178.42% from the same period last year.

Various businesses blossom to promote rapid growth: in 2019, the company continued to expand domestic and foreign markets to increase market share, and all businesses grew in an all-round way. specifically: 1) the company's competitive advantage in steel smelting, petrochemical, electrical equipment and other traditional advantage areas has been continuously consolidated and strengthened, the service level and market share have been continuously improved, and the annual sales revenue has reached 1.221 billion yuan, a substantial increase of 60% compared with the same period last year. 2) in terms of rail transit, in 2018, the company successfully developed category B1 cable products with high flame retardancy and low release for rail transit, which was widely recognized. in 2019, the company successively participated in the construction of subway projects in more than 30 cities, including Beijing, Xi'an and Chengdu. as well as the construction of more than a dozen railway projects, including Shanghai-Tong Railway, Yu-Huai Railway and Jingyuan Railway, with sales revenue of 261 million yuan, a substantial increase of 65% over the same period last year. 3) in the field of nuclear power and new energy, in 2019, the company successfully won the order for the first demonstration project of "Hualong No. 1" in the world-- the No. 5 unit project of Fuqing Nuclear Power Station and the demonstration project of the world's first high-temperature gas-cooled reactor nuclear power plant-- Shidao Bay Nuclear Power Station. At the same time, orders in the areas of photovoltaic and wind power maintained steady growth, making this part achieve sales revenue of 245 million yuan, an increase of 30% over the same period last year. 4) in terms of power cables, with the continuous improvement of the demand for large-scale power transmission and supply by the development of the national economy, the company has stepped up its efforts to develop the market of EHV power cables, achieving sales revenue of nearly 100 million yuan in 2019, a sharp increase of 389% over the same period last year. 5) overseas expansion has blossomed and borne fruit. In the past 18 years, the company has set up a special international division, focusing on expanding countries along the Belt and Road Initiative route, and establishing strategic partnerships with large central enterprises to jointly develop overseas markets in the form of a consortium. In 2019, the company's overseas market achieved steady growth, with sales revenue reaching 218 million yuan, an increase of 28% over the same period last year.

The product structure has been continuously optimized, and the management and control level of accounts receivable has been significantly improved: in 2019, the company's comprehensive gross profit margin reached 21.42%, an increase of 2.17pcts over the same period last year, reaching the highest level in recent years, making the growth rate of net profit much higher than that of revenue growth. Among them, the gross profit margin of ordinary cable was 19.91%, an increase of 4.35pcts over the same period last year, and an increase of 1.78pcts over the same period last year. The improvement of gross profit margin is mainly due to the continuous optimization of product structure and the rapid growth of market share of high value-added products. In addition, in recent years, the company has continued to improve the management of accounts receivable, strengthening the management of accounts receivable in advance, during and after the event, so as to reduce the risk of accounts receivable recovery. In 2019, the risk prevention and control level of the company's accounts receivable was significantly improved, the proportion of accounts receivable to revenue decreased by 4.78pcts over the same period last year, the recovery rate of accounts receivable increased by 12% year-on-year, and the company's operating cash flow was also greatly improved.

The high requirement of equity incentive performance shows confidence, and 2020Q1 performance is under pressure, and it is expected to resume high growth in the later stage: in 2018, the company has completed awarding 9.54 million restricted shares to 135 incentive targets who meet the grant conditions, including company directors, senior managers, middle managers and core backbones. Corresponding to the unlocking conditions, the net profit in 2018-2020 is 0.5 million yuan respectively. The high requirement of equity incentive fully demonstrates the management's confidence in the future of the company. 2020Q1, affected by COVID-19 's epidemic situation, the construction of some projects served by the company has been delayed and the delivery of products has been delayed, resulting in a certain decline in the company's revenue and home net profit, but at present, the company has fully resumed work and production. According to the company's on-hand orders, the new inventory has increased by 56.65% compared with the same period last year, and the performance of Q2 company is expected to recover significantly.

Investment advice: we expect the company's revenue from 2020 to 2022 to be RMB 100 million in 28-35-41, with a growth rate of 38%, 23% and 18%, respectively, and the net profit of its parent will be RMB 266 million, with a growth rate of 105%, 25% and 18%, respectively. Maintain the "increase in holdings-A" rating, with a target price of 8.2 yuan in 6 months.

Risk tips: intensified competition has led to a sharp decline in gross profit margins and a sharp rise in the prices of major raw materials such as copper.