Event: the company released the results report for the third quarter of 2020, the operating income in the first three quarters was 630 million yuan, down 30.2% from the same period last year. The net profit belonging to the parent company was 23.404 million yuan, down 84.2% from the same period last year, and the net profit per share was 0.04 yuan, down 83.3% from the same period last year. In the third quarter, the company's operating income was 260 million yuan, down 34.7% from the same period last year, and the net profit belonging to shareholders of listed companies was 12.072 million yuan, down 84.5% from the same period last year, which is in line with the forecast performance range.

During the labor pains period of the epidemic, various businesses recovered slowly: since the beginning of 2020, the company has been continuously affected by the COVID-19 epidemic, and the company's performance has declined seriously. at the same time, the high base in the third quarter of last year led to no significant improvement in Q3 this year. Due to the unfavorable control of the overseas epidemic situation, the company has a large proportion of overseas income, and the overall operation is still in the recovery period. In the first three quarters, the implementation of some overseas projects was delayed, and LED showed that export revenue declined compared with the same period last year; Smart Lighting, due to industry adjustments and macro policies, some projects stagnated, revenue fell by more than 40%; and the financial technology business remained relatively stable. According to the level of gross profit margin, the gross profit margin in the first three quarters was 36.3%, down 7.7 percentage points from the same period last year, of which 34.7% was gross profit margin in the third quarter. Due to the shift of market focus to China, changes in business structure have a certain impact on gross profit margin.

Exchange gains and losses, business development costs, performance lows are expected to reverse: there is a certain rigidity in the company's expenses, the decline in revenue scale has brought about an increase in the rate of expenses during the period, and in the first half of the year, due to the overall increase in the rate of domestic market development and sales expenses, the change in the exchange rate between the US dollar and RMB in the third quarter resulted in exchange losses. Q3 financial expenses in a single quarter were 9.137 million yuan, an increase of 13.473 million yuan compared with the same period last year, which jointly affected the profitability. The net profit of returning home in the first three quarters was 23.404 million yuan, down 84.2% from the same period last year, of which the net profit of Q3 in a single quarter was 12.072 million yuan, down 84.5% from the same period last year. The performance affected by the epidemic is still at a low point. According to the usual practice, the fourth quarter will be the peak season of the industry. with the gradual restoration of overseas production order, the annual operation has entered the sprint stage, and the performance is expected to reverse at the bottom.

Strong and powerful jointly sign strategic agreement, financial technology and Mini & Micro LED enable: the company has not disclosed its annual operating performance forecast for 2020. In the short term, there is still a repeated risk of overseas epidemic, but based on the experience of the first wave of epidemic, the impact on the company will be weakened. In the continuous recovery of production and operation, the company is currently handling orders and winning bids of about 800 million yuan, and it is still expected to confirm the performance in Q4. Recently, the company has signed a strategic cooperation agreement with Amex, and will jointly participate in bidding for major projects such as smart bank, smart transportation, smart city and smart telecom in the future. Amex's cooperation will add impetus to the company's financial technology business. In the field of LED display, a strategic cooperation agreement has been signed with Xiamen Cinda. Based on the good prospects of Mini & Micro LED, the two sides will jointly develop cooperation and jointly invest abroad in the future. Cutting into the track in the early development of Mini & Micro LED will help the company to continue to gain a leading position in LED. Therefore, in the long run, the company's financial technology and LED show that the business conforms to the development trend of the industry and will usher in more room for development after the labor pains affected by the epidemic.

Investment advice: therefore, we believe that the impact of the epidemic does not change the company's high-quality track, and is still optimistic about future growth. We expect earnings per share from 2020 to 2022 to be 0.18 yuan, 0.30 yuan and 0.37 yuan respectively. The return on equity is 7.7%, 11.6% and 12.4% respectively, maintaining the buy-B recommendation.

Risk hints: the sustained overseas demand recovery of the epidemic is not as expected; the penetration of the Mini LED market is not as expected; LED shows that competition in opening up the domestic market is intensified; landscape lighting business continues to be affected by macro policies; and the intelligent transformation of the network is not as expected.