Main points of investment

Items:

The company announced that the revenue of the company in the first half of 2020 was 366 million yuan (- 26.63% YoY), and the net profit attributed to shareholders of the listed company was 11 million yuan (- 83.87% YoY).

Peace viewpoint:

The epidemic affected the company's performance, and Q2 gradually recovered: in the first half of 2020, the company realized revenue of 366 million yuan (- 26.63% YoY) and net profit belonging to shareholders of listed companies of 11 million yuan (- 83.87% YoY).

In the first half of 2020, the company's overall gross profit margin and net profit margin were 37.39% (- 7.20pct YoY) and 3.05% (- 11.41pct YoY) respectively. The decline in the company's gross profit margin was mainly due to the background of the epidemic in the first half of the year. The construction and business development of domestic projects in smart lighting business were greatly affected. From a quarterly point of view, the revenue of Q1 and Q2 in 2020 was 138 million yuan (- 51.13% YoY) and 228 million yuan (5.41% YoY) respectively, and the return net profit was-8 million yuan (- 122.66% YoY) and 20 million yuan (- 40.68% YoY), respectively. With the epidemic under control in China, the decline in Q2 net profit in the single quarter was significantly narrowed, and the overall performance of the company was lower than expected. Different from the manufacturing enterprises in consumer electronics, under the protection of the epidemic, the company's smart lighting and LED display business involves engineering construction, which will be more affected by the epidemic. From a business point of view, the revenue of LED video display system, intelligent landscape lighting project and network intelligent integration and equipment in the first half of the year was 109 million yuan (- 29.63 YoY), 112 million yuan (- 41.84% YoY) and 130 million yuan (2.71%YoY) respectively, accounting for 29.86%, 30.56% and 35.65% respectively. Gross profit margins are 47.16% (- 11.31pct YoY), 19.26% (- 10.66pct YoY) and 38.58% (- 3.50pct YoY), respectively.

Cost side: in the first half of 2020, the company's financial expense rate, sales expense rate, management expense rate and R & D expense rate were-0.27% (- 0.29pct YoY), 14.07% (0.54pct YoY), 9.87% (3.11pct YoY) and 9.02% (1.60pct YoY), respectively. Under the background of the epidemic, the company increased its efforts to expand the domestic market, expand the domestic sales team, and actively build channels.

Optimization of financial technology and LED to build an enabling management platform: the company continues to optimize the layout of LED applications and financial technology: in the field of financial technology, the company complies with the intelligent trend of bank outlets, telecommunications outlets, etc., and increases the development of financial technology business, gradually upgrading from traditional queuing system and lattice display screen to intelligent robot. And for China Telecom Corporation's first wisdom business hall and other customer outlets to provide intelligent products and systems. The company has participated in the implementation of a number of benchmarking intelligent banking projects, and gradually explore new intelligent products and intelligent applications of bank outlets. LED display field: the company adheres to the marketing strategy of large market and key customers, and provides customers with high-quality high-end LED display solutions with innovative technology and stable performance. Relying on the first-mover advantage of Mini LED display products and increasing the market development of conference rooms and other segments of the market, the company has completed a number of projects, including China China Construction Bank Corporation Shanghai Kechuang Financial Core Lab, Switzerland Schindler City Center, China Merchants Bank Shenzhen Branch, and Shenzhen Bay Laboratory of Peking University Shenzhen Graduate School. The field of landscape lighting: affected by the epidemic in a short time, it has a certain impact on project construction, normal acceptance and payback. However, the company continues to select boutique projects, and in the first half of the year, the company undertook the landscape lighting promotion project of Nanhai Financial District of Foshan City and the first phase of Shenzhen Baoan Binhai Culture Park.

Investment strategy: taking into account the impact of the epidemic and macroeconomic downturn on landscape lighting and LED display business, we lowered the company's profit forecast. It is estimated that the company's net profit attributable to the parent company from 2020 to 2022 will be 1.20 pm 271 million (the original value is 2.28 pm), corresponding to PE of 31-18-14. The company continues to cultivate LED display and financial technology business, especially Mini LED display products are expected to gradually increase volume, optimistic about the company's future performance flexibility. In addition, taking into account the low valuation of the company, the company still maintains the "recommended" rating.

Risk hint: 1) the risk of contract performance: there is a certain period in the execution of the contract, and it is affected by factors such as unpredictability or force majeure in the actual performance, which may lead to the risk that some or all of the contents of the contract cannot be performed or terminated. 2) the risk that accounts receivable can not be collected on time: most of the company's landscape lighting projects are paid by installments and there is a certain account period, so there is the risk of not being collected on time; 3) the risk of technological progress: in the sports display application system, the requirements of the LED display around the stadium are more stringent, and its corresponding technical content is higher, if the company can not continue to invest in research and development, there is a risk of customer loss. 4) the risk of trade friction: due to the instability of the international political and economic environment in recent years, there is greater uncertainty in some of the company's overseas markets, such as the North American market, especially the recent changes in Sino-US trade policy. if the trade protection policy is gradually implemented, it may have a certain impact on the company's business in North America.