1. Event Overview Today, the company released its 2020 three-quarter report: the first three quarters achieved operating income of 81 million yuan, -6.5% year-on-year; net profit of 110 million yuan, -27.8% year-on-year. At the same time, the company announced the draft restricted stock incentive plan for 2020. It plans to grant 154 company executives 1.12 million restricted shares at a price of 60.31 yuan. 2. Analysis and judgment: The Q3 revenue growth rate has been corrected, and downstream demand for electric sofas is improving. The company's revenue growth rates for the first three quarters were -15%, -15%, and +11%, respectively. Q3 profit for the single quarter was -13%, which was narrower than the 34% decline in the first half of the year, mainly due to the weakening of the impact of the epidemic and the gradual recovery of downstream demand. Smart home linear drive products are the company's main source of profit at present, accounting for 70% of last year's revenue and are mainly used for export. Previously, Gujia Home, an important customer of the company, disclosed the three-quarter report. Q3 revenue for a single quarter was +33%, and the growth rate was 32 percentage points higher than Q2. The US real estate boom hit an inflection point in May. The year-on-year growth rate of new home sales in August-September both exceeded 40%, and consumer demand for electric sofas is gradually picking up, which will drive the company's sales to continue to improve in the future. Gross margin rebounded, and net interest rates declined slightly due to RMB appreciation. The company achieved a comprehensive gross profit margin of 32.0% in the first three quarters, a net profit ratio of 13.1%, +0.8% and -1.0% over the previous quarter. The increase in capacity utilization led to a recovery in gross margin. The decline in net interest rate was mainly due to exchange profit and loss. The RMB has continued to appreciate since June. Q3 has appreciated by about 5%. It is estimated that the corresponding exchange loss for Q3 in a single quarter was around 10 million, accounting for 1.2% of revenue in the first three quarters and 10% of net profit. Home+office+electric tailgate jointly contribute to growth. Equity incentives bind core employee interests. In addition to the main home business benefiting from the recovery of US real estate, the company's smart office and electric tailgate business also have great potential for growth. Currently, the global penetration rate of electric desks is only 5 to 10%, and there is plenty of room for improvement compared to the 40% penetration rate of electric sofas in North America. China is just emerging, and it is expected that the future will fully benefit from the rise of the concept of healthy office consumption. In terms of electric tailgates, in the first half of the year, the company's products entered the Toyota optional market and cooperated with many OEMs. It is expected that import substitution will gradually be achieved in the future. The draft restricted stock incentive plan announced by the company this time lifted sales restrictions for a total of 4 years, targeting a total of 154 people. It is expected to further bind the interests of core employees and ensure continued growth in the future. 3. Investment recommendations The linear drive industry has similar consumption attributes and a wide range of application scenarios, and is optimistic about the company's continued development of business in related fields such as electric sofas, desks, and electric tailgates. The company's EPS for 2020 to 2022 is expected to be 3.79/4.91/6.32 yuan/share, corresponding to the current stock price of PE 32/25/19x, which is lower than the 2020 average PE forecast of 50x of comparable companies in the linear driving industry. It is covered for the first time, giving it a “recommended” rating. 4. Risk warning: 1. Overseas demand for electric sofas fell short of expectations; 2. The development of the electric tailgate market fell short of expectations.