Event: in 2020, H1 realized revenue (115 million yuan, + 6.97%), net profit (16 million yuan, + 45.94%), non-return net profit (13 million yuan, + 38.70%), and gross profit margin (33.92%).

Main points of investment:

Deducting the growth of non-net profit against the trend, setting a new high in the same period in the history of listing for 12 years: during the reporting period, the company seized the new market opportunities of epidemic prevention and control and "new infrastructure", went up against the current, and achieved steady growth in major operating performance. Revenue in the first half of the year (115 million yuan, + 6.97%), a record high for the same period in nearly four years; deduction of non-net profit (13 million yuan, + 38.70%), a record high for the same period in the 12-year history of listing; contract liabilities + accounts received in advance (22 million yuan, + 30.22%), a record high for the same period in the past three years. During the reporting period, the revenue increased slightly, the gross profit increased steadily, and the net profit increased rapidly. The net cash generated by the business activities is-64.3669 million yuan, which is mainly due to the advance of project material costs in the implementation of the new product sales contract in the current period, and the delay in the implementation of the contracts already signed by the affected parts of the epidemic, and the delay in repayment according to the progress of the contract. The ending inventory (237 million yuan, + 31.91%) is mainly due to the delayed delivery of the projects affected by the epidemic in this period to prepare goods for the implementation of the newly signed contract.

The number of projects under construction decreased by 51.63% compared with the beginning of the period, mainly due to the completion of the new tower simulation equipment project and the carry-over of fixed assets.

The epidemic accelerated the market to absorb new demand ahead of time, and artificial intelligence products and services began to expand on a large scale: at the beginning of the year, the company set up a wartime headquarters to concentrate its main efforts on completing new projects that users urgently need and give full play to the company's technological advantages under the new situation. Developed based on high-precision 3D face recognition technology, "automatic face recognition with mask" and other technologies and products, and achieved success. From the perspective of revenue structure, (1) the revenue of aviation and air traffic control products and services (51 million yuan,-35.32%) is mainly due to the delay in the execution of contracts affected by the epidemic and the reduction in revenue confirmed on schedule. (2) the revenue of artificial intelligence products and services (53 million yuan, + 179.95%) is mainly due to the revenue of 3D face recognition related products (28 million yuan, + 304.11%). Has begun to scale; (3) virtual reality and augmented reality and other businesses achieve revenue (11 million yuan, + 7.32%), the scale is small, the proportion of revenue is still less than 10%.

High-precision 3D face recognition technology will become the mainstream of market development, and the company has the core competitive advantage in this field: the anti-counterfeiting ability of two-dimensional face recognition products is weak. Images, dynamic video and high simulation masks crack face recognition verification events occur from time to time, and high-precision 3D face recognition will become the mainstream technology of the market in the future. The company has been developing 3D face recognition technology since 2010. the depth and accuracy of 3D face camera reach 0.036mm and 0.038mm respectively, reaching the international leading level in achieving high speed and high precision at the same time. At present, the company has applied this technology to prevent replacement tests (such as sports examination, art examination) and epidemic prevention control in Chongqing and Sichuan, and has tried a total of 341 high-precision three-dimensional recognition tablets (sets), with good demonstration results; in the second half of the year, the research on "facial scanning trip" of high-speed railway in cooperation with railway scientific research departments will enter the experimental operation stage, and the experimental operation of "facial scanning trip" will be carried out on a new high-speed railway line designated by the railway. At the same time, we are working with several national defense enterprises to promote a demonstration of high security access control based on high-precision three-dimensional technology. In the first half of the year, the company signed nearly 100 million yuan of related contracts (including winning the bid), which has exceeded the 69.941 million yuan (including winning the bid) in the whole of last year.

Aviation and air traffic control orders are still growing steadily, and future military aviation air traffic control products or contribute revenue growth: during the reporting period, the company signed new contracts with air traffic control business (128 million yuan, + 11.33%). It is still growing steadily. "ATC Security Protection system based on artificial Intelligence speech recognition Technology" has won 20 sets of product contracts at Chengdu, Chongqing, Kunming and other airports, and will be popularized and applied in the national ATC system in the second half of the year. More than 200 million contracts signed between aviation and air traffic control in 2019 have been delayed due to the epidemic, and revenue will be gradually realized in the second half of the year. The company's market share of air traffic control automation system products in the military aviation field ranks first in the industry, with the target "new generation military traffic control center system construction project" totaling 238 million yuan in mid-2013. due to the adjustment of military reform institutions and other factors, the project has been postponed so far. In the investor relations activity on August 25, the company expects related projects to restart in the second half of this year, and the future military aviation air traffic control business may contribute to a new increase in revenue. This year, the company will continue to promote the promotion and deployment of products such as simulator training, multi-channel digital synchronous recorder and air traffic control automation system, and promote the sustained and stable development of aviation and air traffic control business through the close combination of traditional products and artificial intelligence.

Investment suggestion: we believe that Sichuan Zhisheng has a core competitive advantage in the field of high-precision 3D face recognition technology, and the related business has begun to scale up. The company's aviation and air traffic control business is still developing steadily, and the relevant contracts will gradually cash in revenue in the second half of the year. Military aviation air traffic control business may contribute to a new increase in revenue in the future. The certainty of the company's sustained growth is strong. It is predicted that its net profit in 2020, 2021 and 2022 is 66 million yuan, 87 million yuan and 104 million yuan respectively, and the corresponding EPS is 0.29,0.38,0.46 yuan respectively. The current stock price corresponds to 55 times, 42 times and 35 times of PE respectively. With reference to listed companies in the same industry, it gives the company a valuation of 70 times PE in 2020 and a "buy" rating.

Risk tips: delayed implementation and acceptance of projects affected by the epidemic; market expansion is not up to expectations; iteration of related products and technologies is accelerated.