Event: On July 29, 2020, the Bengbu High-tech Industrial Development Zone Management Committee signed a 5G multi-pole integrated smart street lamp R&D and production base investment agreement and project cooperation agreement with Guoxin Huayang, Bengbu City Investment Holdings Co., Ltd., and Huati Technology. According to the investment agreement, Guoxin Huayang, Bengbu City Investment, and Huati Technology will jointly establish a 5G multi-pole smart street lamp R&D and production base in the Bengbu High-tech Zone. According to the project cooperation agreement, on the premise of complying with legal policy requirements, in the 40,000 5G multi-pole integrated smart street lamp construction and renovation project included in the Bengbu City Construction Plan, priority is given to the use of products from industrial joint ventures under the same conditions. Comment: 1. The construction and renovation of 40,000 and 3.9 billion smart light poles in Bengbu City is clearly included in the plan to commence construction. The company's business in the southwest market is stable, and the signing of project cooperation agreements has helped develop markets such as East China. Huati Technology is headquartered in Chengdu, Sichuan, so it has the highest market share in southwest China and a stable position. The East China and Central China markets are also constantly developing. Southwest Market: According to the company's official website, a total of 14 projects have been launched in the southwest region. In 2019, revenue in Sichuan Province reached 401 million yuan, an increase of 125.69% over the previous year, accounting for 56.32% of total revenue. This year, there was also the upgrade of Chengdu's Sansheng Flower Village, which was completed in April. On July 6, it won the bid for a large order of 160 million yuan for the purchase volume of 4,557 smart light poles in Meishan, Sichuan. Moreover, the order was only the first phase of the smart street light project in Tianfu New District of Meishan City, which was invested in a high-ranking area. The total investment of the project is 2,036 billion yuan, and the investment of smart equipment is about 64,000 units or 500 million yuan. After the first phase is implemented and perfected, it will be gradually extended to Tianfu New Area in Meishan. Huantian Wisdom, a subsidiary of Huati Technology and a subsidiary of State-owned Holdings in Meishan, Sichuan, is expected to continue participating in the smart street lighting project in Tianfu New Area of Meishan. With the stabilization of the southwest market, the company gradually expanded into other domestic markets. East China Market: According to the company's official website, a total of 6 projects have been launched in East China. In October 2016, Shanghai piloted the smart street light “Huadeng No. 1”; in February 2017, the smart street light “Clear Moon” appeared in Fuzhou; in May, the “Modern Ginkgo” smart street light landed in Wuhu, Anhui; in July 2019, the “Seagull” smart street light landed in Qingdao CBD, Shandong, September, “Laurel”, and “Meteor”, three smart street lights, “Streamlight”, and “Meteor”, launched in Jinan, Shandong; in January 2020, Huati participated in the construction of smart street lights in Fuzhou's central and western cultural characteristic districts; in February 2020, Huati participated in the construction of smart streetlights in Fuzhou's central and western cultural characteristic districts; in February, Jiangxi Yingtan - Yintan Road in Yingtan, Jiangxi The construction of Jianglu Wisdom Avenue was completed. According to the project cooperation agreement signed by the company on July 29, Bengbu will give priority to the use of products from industrial joint ventures under the same conditions in future smart street lighting projects on the premise that they comply with legal policy requirements. Meanwhile, in January of this year, the Bengbu Municipal People's Government Office released the “2020 Bengbu Municipal Government Project Investment Plan”, the smart street light project in Bengbu City was clearly included in the planned newly started projects. It is estimated that 40,000 smart street lights will be built throughout the city, with a total investment of 3.9 billion yuan; the 5G smart street light R&D and production base scheduled to begin construction in May has a total investment of 1 billion yuan. The cooperation agreement is expected to help the company develop the East China market and drive the company's performance growth. Central China Market: According to the company's official website, a total of 6 projects have been launched in central China. In October 2018, road lighting was renovated and upgraded on Changsha Station North Road; in January 2019, long-distance lighting facilities from Shuxiang Road to Liujiachong Road on Xiangfu Road in Changsha, Hunan; in February, “Jiaoyue” smart street lights were installed in Wuhan's Thomson Lake Community; in July, more than 100 sets of “new leaf” smart street lights were supplied for the road lighting renovation project on Mulan Avenue in Huangpi District of Wuhan; in November, smart street lights were installed at Wuhan Jinyinhu Park; in July of this year, “Yangluozhishin” customized “willow leaves” in Wuhan's Hanxinzhou Yangluo Development Zone. 2. The company's industrial capacity helps, and the new “industry+capital” development model helps build a new smart city. The company is one of the largest integrated urban lighting service providers in China and one of the first smart light poles to enter the market. It uses a first-mover advantage in the layout of the entire industry chain, including various aspects such as program planning and design, street lighting, light poles and integration, and project implementation, and is expanding smart city business from the two aspects of “smart street lighting hardware” + “smart city software platform”. The company has strong industrial capabilities in R&D, design, promotion, management and operation in the field of multi-functional smart street lights. Guoxin Huayang mainly uses capital support, while the Bengbu Municipal Government will give maximum support to joint ventures in terms of business environment and project cooperation, forming a new model for smart street lighting development integrating “industry+capital”. Compared with the traditional model, this model reduces the financial pressure invested in the construction of smart street lighting enterprises, and capital can be returned even if capital can be returned. At the same time, compared with the “special debt financing model,” cooperation and government support with other enterprises that have invested capital can more effectively integrate and absorb more resources rather than simply absorbing social capital. Project cooperation also has a competitive advantage, promoting the transformation and upgrading of the smart light pole industry. In addition, smart street lights integrate ICT technologies such as AI, cloud computing, and big data, and support various functions such as smart lighting, weather stations, air quality detection, urban Wifi coverage, video surveillance, charging stations, LED information release, information interaction, and one-click alarms. They are smart city data entry points. Although the “Acer station is the main, micro base station is added” networking method has been an important method for extensive and deep network coverage over a long period of time, in the deep network coverage scenario, microbase stations have a more prominent advantage over Acer stations. As 5G SA deployment accelerates, demand for microbase stations will continue to grow, and will usher in a rapid explosion in the later stages of deployment. Smart street lights have a lot of room for market demand as the best carrier to supplement 5G microbase station sites. The smart street lighting industry has been upgraded, and the 5G smart street light R&D and production base has been launched to meet more 5G SA deployment requirements and other functional requirements, and comprehensively help the construction of new smart cities. 3. In recent years, the company has focused on technology R&D and manufacturing in the field of smart street lights, helping the operation of 5G smart street lamp R&D and production bases and empowering industrial transformation and upgrading. In recent years, the company has focused on technology research and development and manufacturing in the field of smart street lights, while also expanding new smart city scenario services in related fields. Through exchanges and cooperation with many universities in China, the company has gradually developed strong technical advantages and core competitiveness within the industry. The company and the University of Electronic Science and Technology have launched a joint laboratory to develop new scenarios for smart street lighting. A number of technologies and R&D achievements have increased the added value of products and technology content to ensure the company's core competitiveness in the field of smart light pole operation; joined the Huawei eLTE ecosystem alliance in 2018, creating the first smart street lamp “Victor” in China based on eLTE-IoT technology; and established strategic partnerships with Inspur Software and Hikvision to join the Xillinx (Xillinx) partnership program in the US. Strong R&D strength and technical advantages, combined with years of industry experience and operation management experience in the field of smart street lighting, will fully promote the rapid completion and efficient operation of the 5G smart street lamp R&D and production base, and empower the transformation and upgrading of the smart street lighting industry in Bengbu. 4. Profit forecast and investment recommendations: We expect the company to achieve revenue of 11.06/21.38/2,774 billion yuan from 2020 to 2022, net profit of 1.69/2.98/3.88 billion yuan, EPS of 1.66/2.92/3.80 yuan, corresponding PE of 17.34/9.85/7.56 times. Considering that under the influence of the epidemic in the first quarter, the company's performance is still growing rapidly. Driven by demand for new infrastructure and 5G small and micro sites, the company may enter a period of large-scale performance expansion and maintain the company's “highly recommended” rating. 5. Risk warning: the impact of the COVID-19 pandemic; the progress of smart street lighting projects falls short of expectations; the increase in the company's market share falls short of expectations; and the decline in gross margin.