Profits are in line with performance forecast, "new infrastructure" business accelerates

In the first half of the year, the company achieved a revenue of 1.664 billion yuan (YoY-21.98%) and a net loss of 41 million yuan (1H19: net profit 67 million). The decline in revenue and profit was mainly due to the impact of the epidemic, and the net loss was on the upper side of the performance forecast, in line with expectations. 2Q achieved a revenue of 1.022 billion yuan (YoY+15.34%) in a single quarter, gradually stabilized its operation, and realized a net profit of 26 million yuan (YoY-15.98%). In the medium to long term, we believe that the company, as a local state-owned enterprise in Shenzhen, is expected to accelerate the development of information business by relying on the market expansion capabilities of To B and To G accumulated over the years. We estimate that the company's EPS in 2020-2022 will be 0.11 yuan 0.39pm 0.50 yuan respectively, maintaining the "overweight" rating.

The electronic equipment business has achieved rapid growth, and the optical communications business was affected by the epidemic in the first half of the year, although the epidemic had a temporary impact on customer bidding progress, the company's construction progress and overseas sales, but the company seized the opportunity of "new infrastructure" to improve the strategic layout of 5G, big data Center, Industrial Internet and other areas. Electronic equipment business, driven by the needs of military customers, the company's electronic equipment revenue of 83.3 million (YoY+60.07%). In the first half of the year, Chengdu Fourier military big data, a subsidiary, developed steadily and continued to obtain user orders; China Airlines signed a contract with a record high, and achieved a breakthrough in major model matching of data acquisition products. In terms of optical communication business, the company's optical fiber and cable revenue in the first half of the year was 624 million yuan (YoY-16.85%), and communications equipment revenue was 890 million yuan (YoY-29.64%).

The gross profit margin decreased slightly, the expense rate increased slightly, and the project under construction increased by 24.36% compared with the end of last year. The company's comprehensive gross profit margin in the first half of the year was 14.76%, slightly lower than the same period last year. 0.51pct. Due to the addition of Sichuan Huatuo into the sales fee and the increase in the transportation cost of the power plate, the sales expense rate in the first half of the year was 4.44% higher than that of the same period last year. The rate of administrative expenses (including R & D) rose 2.09pct to 9.79%. Due to the investment in the construction project of the Smart City Innovation and Exhibition Base, by the end of June, the project under construction of the company had increased by 24.36% over the end of last year to 217 million yuan.

The prosperity of military information business has improved, and "new infrastructure" brings new opportunities. We believe that the improvement of the level of military information will promote the sustained and rapid development of the company's related business. In addition, driven by policy, the "new infrastructure" business is expected to accelerate the landing. The subsidiary Shenzhen Special Information data Technology has obtained the two major operating qualifications of ISP and IDC, the development of IDC business is expected to accelerate, and its smart city project is under orderly construction and is expected to be completed and put into use in the fourth quarter of 2020. The company actively participates in the construction of the "new infrastructure" project, and plans to set up Shenzhen Special hair Information Technology Service Co., Ltd. in the first half of the year to enter the integrated field of smart city and smart park construction.

Maintain the "overweight" rating

We believe that the prosperity of the company's military information business has improved, and the "new infrastructure" has brought new opportunities. We keep the profit forecast unchanged, and estimate that the EPS of the company in 2020-2022 will be 0.11 USD 0.39pm 0.50 respectively. Based on the segment valuation method (see page 2 for specific estimates), we believe that the reasonable valuation of the company in 2021 is 11.238 billion yuan, corresponding to the target price of 13.79 yuan (unchanged), and maintain the "overweight" rating.

Risk hint: increased competition in the optical fiber and cable industry has led to a decline in profitability; due to the contraction of energy consumption indicators in first-tier cities, data center business expansion is limited.