Overview of events

On August 26, the company released its interim performance report that H1 achieved 126 million yuan in operating income in 2020, down 52.3% from the same period last year, and its net profit was-43 million yuan, down 393.8% from the same period last year.

Q2 is close to break-even in a single quarter, and the growth in the second half of the year is expected to restore H1's operating income of 130 million yuan in 2020, down 52.3% from the same period last year, of which Q2 achieved revenue of 82 million yuan, down 31% from the same period last year, compared with the revenue of the previous quarter, down 70% from the same period last year. Affected by COVID-19 's epidemic situation in the first half of the year, the delay in the acceptance and delivery of orders on hand led to delays in collection. After the second quarter, the control of the domestic epidemic situation is relatively stable, and the company's business lines have resumed work one after another. The net profit of Q2 is-4 million yuan, which is close to the break-even. We believe that the company's revenue is obviously seasonal, accounting for only 10% of profits in the first half of the year. With the gradual control of the domestic epidemic, we believe that the company's growth is expected to recover significantly in the second half of the year, leading to annual performance growth.

The growth of Ping an city plate is steady, and the expenses during the period are lower than the same period last year.

1) in terms of products, the revenue of Internet of things platform construction and solutions, IoT equipment and software sales and Ping an city operation services reached 66 million yuan, 24 million yuan and 31 million yuan respectively in the first half of the year. The Ping an city plate is less affected by the epidemic and its revenue is robust. 2) in terms of period expenses, the sales expenses in the first half of the year were 30 million yuan, down 10% from the same period last year; and the administrative expenses were 28 million yuan, down 27% from the same period last year.

Mainly due to the fact that the company was affected by the epidemic, many projects lagged behind and the corresponding costs were reduced; the financial expenses were 568000 yuan, an increase of 519% over the same period last year, mainly due to the increase in interest expenses; and the company's R & D investment in the first half of the year was 35 million yuan, down 6% from the same period last year. In addition, the company's development expenditure has increased on the R & D project software definition Internet of things application platform, Internet of things intelligent management platform (IOTMP), IOTMP mobile development phase expenditure.

In June this year, the company invested in domestic UWB upstream chip enterprises through investment, gradually improved the layout of the whole industry chain of "chip-module-product-platform-application", and further carried out cost control under the combined role of the whole industry chain, in order to lead the development of the industry and achieve rapid business growth at the same time. At present, the company's UWB products have realized the scene of prison monitoring records of prisoners and tracking the trajectory of community correction personnel. The company is actively exploring the application and landing of other fields such as finance, nuclear power and power industry. According to the data of IoT Media, the market volume of UWB enterprise applications in China will reach 12.15 billion yuan in 2022, the industry is growing rapidly and is still in the blue ocean market, the company has obvious first-mover advantages and product advantages, and is expected to continue to benefit from the high prosperity of the industry.

Investment advice:

It is estimated that the EPS of the company from 2020 to 2022 is 0.23, 0.28, 0.35 yuan, respectively, and the corresponding PE is 46-38-31. Taking into account the development of the company's Internet of things platform and the volume of UWB business, the company is given a 60-fold PE in 2020, corresponding to the target price of 14.03 yuan, 30% of the stock price space, covering for the first time, and given a "overweight" rating.

Risk Tips:

1) Macroeconomic or downside risks. 2) the application and promotion of UWB products may not be as expected. 3) the progress of research and development of the Internet of things platform is not as expected. 4) the delayed recognition of project income leads to performance fluctuations.