Event: Haoyun Technology released the semi-annual report 2020, the company's operating income in the first half of the year was 126 million yuan, down 52.32% from the same period last year; the net profit was-43.0775 million yuan, down 393.82% from the same period last year; the net profit was-46.6993 million yuan, down 521.71% from the same period last year; the net operating cash flow was-92.2588 million yuan (- 108 million yuan in the same period last year).

The loss in the second quarter narrowed, and the performance in the second half of the year is expected to be reflected: the implementation of tendering and bidding is limited due to the epidemic in the first quarter, and the delay in project construction has a great impact on the company's orders and revenue. The company achieved revenue of 83 million yuan in the second quarter, down 30.06% from the same period last year. Homing net profit-3.6233 million yuan, down 183.83% from the same period last year, narrowed compared with the revenue / net profit of the first quarter (down 70.29% and 481.61%), and has gradually recovered. Judging from the data of the past three years, the company's revenue in the first half of the year accounted for roughly 32% of the whole year, and revenue recognition and profits were mainly reflected in the second half of the year, so with the gradual control of the epidemic and the recovery of social and economic activities, the company's performance in the second half of the year is expected to rebound.

Fixed cost inputs such as equipment and labor may be a drag on gross profit margin, and Ping an City sector has a relatively sound performance: according to the industry classification of the company's income structure, the financial sector achieved operating income of 71.4775 million yuan, down 58.20% from the same period last year, with a gross profit margin of 20.86% (- 20.74pct). Ping an City Plate achieved operating income of 44.6044 million yuan, an increase of 2.31% over the same period last year, and gross profit margin of 34.51% (- 22.00pct). In terms of products, revenue from the three sectors of Internet of things platform construction and solutions, IoT equipment and software sales, and Ping an city operation services reached 66.199 million yuan, 24.4057 million yuan and 30.9564 million yuan respectively, except that Ping an city operation services increased by 3.13% year-on-year. In terms of profit, the gross profit margin of the three product sectors fell by 19.13pct, 0.56pct and 4.09pct respectively, and the company's overall gross profit margin was 28.67%, a decrease of 11.02% compared with the same period. We judged that it was mainly due to the drag on profits caused by fixed costs such as equipment and labor due to the decrease in revenue caused by the epidemic.

Sales and management expenses decreased significantly, and R & D focused on increasing investment related to the Internet of things platform: in the first half of 2020, the company's expense rate (excluding R & D) was 46.93%, a decrease of 19.57pct compared with the same period last year.

Of this total, sales expenses were 30.4306 million yuan, down 10.48% from the same period last year; management expenses were 28.2824 million yuan, down 26.79% from the same period last year; and financial expenses were 568000 yuan, down from-135600 yuan in the same period last year, mainly due to the increase in interest expenses. In terms of research and development, the company increased the expenditure on the development phase of software-defined Internet of things application platform, Internet of things intelligent management platform (IOTMP) and IOTMP mobile terminal. The total R & D investment was 34.5976 million yuan, a decrease of 5.96% over the same period last year, of which R & D expenditure was 26.099 million yuan, an increase of 6.69% over the same period last year.

Invest in UWB domestic chips to improve the industrial chain, embedded in urban smart rods to open a new journey of wisdom: recently, the "notice on the release of the first batch of Shenzhen multi-functional smart rod supporting products into the warehouse" shows that the company's holding subsidiary Runan Technology has successfully become the first batch of storage units with UWB products, and is the exclusive UWB storage unit among the supporting products. Multi-functional intelligent pole is a new type of information infrastructure that integrates intelligent lighting, video surveillance, traffic management, environmental monitoring, wireless communication, emergency rescue and other functions. Through the integration of UWB precise positioning, wireless network, intelligent camera, 5G and other advanced technology and equipment, it has become an important perception point of the new smart city. The Shenzhen Municipal Bureau of Industry and Information Technology said that 4526 new multi-functional smart poles will be built in Shenzhen in 2020 and 24000 in 2022, comprehensively promoting the rapid landing of smart pole technology applications that integrate multi-functions such as communication network, Internet of things and vehicle Internet of things. The UWB technology is expected to take advantage of this opportunity to open a new landing channel, with smart phones, wearable devices and other applications to open a huge market. Runan Technology, a subsidiary of Runan Technology, as an important domestic UWB manufacturer and exclusive storage unit, will also take advantage of the opportunity to set sail in the smart city construction of smart rod rapid promotion. In addition, in June this year, the company signed a capital increase agreement with domestic UWB upstream chip design companies (accounting for 6% of the chip design company after investment) to help UWB build domestic chips and further improve the layout of the "chip-module-product-platform-application" industry chain.

We believe that under the background of the continuous acceleration of UWB technology application in the second half of the year, the company's business situation is expected to usher in a significant improvement. In the medium and long term, as the builder of the world of wisdom and security, the company will start a new journey of wisdom in the construction wave of Guangdong-Hong Kong-Macau Greater Bay Area.

Investment suggestion: from 2020 to 2022, the company is expected to achieve operating income of 8.79,11.32 and 1.404 billion yuan, net profit of 1.57,2.23 and 250 million yuan, EPS of 0.23,0.32,0.36 yuan respectively, corresponding to PE of 46X, 32X and 29X, maintaining a "highly recommended" rating.

Risk hint: judicial administration information construction is not as expected; Runan science and technology business development is not as expected; UWB technology promotion is not as expected; industry competition is intensified.