Main points of investment

Event: the company released its mid-term performance report for 2020, with operating income of 370 million yuan in the first half of the year, down 26.6% from the same period last year, gross profit 37.4%, down 7.2% from the same period last year, and net profit belonging to the parent company was 11.332 million yuan, down 83.9% from the same period last year. In the second quarter, the company realized operating income of 230 million yuan, up 5.4% from the same period last year, gross profit margin of 38.1%, down 3.0% from the same period last year, and net profit belonging to shareholders of listed companies was 19.537 million yuan, down 40.7% from the same period last year.

The performance in the second quarter returned to year-on-year growth, and the financial science and technology business bucked the trend: affected by the global COVID-19 epidemic in the first half of 2020, the company's domestic and foreign businesses were affected to varying degrees, especially in the first quarter. in the second quarter, the company actively adjusted its business strategy to expand the domestic market and achieved restorative growth. In terms of products, financial technology business revenue increased by 2.7% in the first half of the year compared with the same period last year, mainly due to the focus on increasing market development in this business field, and completed a number of smart bank network projects and a large number of communication operator business hall renovation projects in the first half of the year.

LED showed a 29.6% decline in business revenue compared with the same period last year. The company's business focused on overseas markets, resulting in delays in the delivery of existing orders and obstacles in the development of new projects, which put great pressure on the performance. However, the company made up for some of the overseas influence by strengthening the expansion of domestic market channels by virtue of the first-mover advantage of Mini LED and the control system integration advantage of "combination of software and hardware". Smart lighting business entered an adjustment period affected by the policy, with revenue falling 41.8% in the first half of the year compared with the same period last year, and the epidemic affected construction and business development.

The gross profit margin increased by 1.9 pct in the second quarter from the previous quarter, and the net profit turned into profit: in the first half of 2020, the company's gross profit margin decreased by 7.2% compared with the same period last year to 37.4%, mainly due to a significant decline in overseas businesses with higher gross profit margin. Q2 increased by 1.9% compared with Q1 by quarter to 38.1%, mainly due to the improvement of Q2 display business and the decrease of expense rate. Due to the large decline in Q1 revenue and the rigidity of some expenses, the expense rate reached 40.2% in the first quarter, and decreased by 12.1 percentage points to 28.1% in the second quarter compared with the period of income increase, achieving a substantial improvement in the profit end. The net profit of the company in the first half of 2020 was 11.332 million yuan, while that of Q2 in a single quarter was 19.537 million yuan, turning losses into profits.

The development of the domestic market has achieved further results, and the combination of soft and hard advantages conforms to the new opportunities of 5G: considering the uncertain risk brought by the epidemic, the company did not give the performance forecast for January to September 2020, judging from the current industry trend and the company's business strategy, we judge that the company's three major businesses can achieve growth. In terms of financial technology, the company is expected to further infiltrate the intelligent transformation market based on the wisdom to transform the first-mover advantage and the integrated service capability of the combination of software and hardware. In the field of LED display, this year, great efforts have been made to open up the domestic market and build a number of channels to make up for the setbacks in overseas markets. It is expected that as Mini LED enters a stage of rapid development, film and television production, teleconference and other segments continue to emerge, the company's domestic market development efforts will further achieve results, while overseas markets are expected to gradually return to normal. Smart lighting business will enter a healthy development stage in the future, and the company is expected to achieve a healthy growth of business scale by digging new applications under the 5G trend. After entering the post-epidemic phase in the second half of the year, there are expectations of recovery in both domestic and foreign business, and the company's performance is expected to gradually pick up after the low point in the first half of the year. Q2 has shown a stabilizing trend. At present, the number of orders on hand has reached 1 billion, and new growth is expected in the second half of the year.

Investment suggestion: our company forecasts earnings per share of 0.20, 0.32 and 0.37 yuan respectively from 2020 to 2022. The return on equity is 10.0%, 12.7% and 11.8% respectively, maintaining the buy-B recommendation.

Risk hints: the sustained overseas demand of the epidemic is less than expected; the market demand of Mini LED is lower than expected; LED shows that increased competition leads to a decline in gross profit margin; landscape brightening business continues to be affected by macro policies; and the intelligent transformation of outlets is not as expected.