Company announcement 2020Annual performance Forecast: the company announces that it expects to return to its mother in 2020 with a net profit of 650 million yuan to 710 million yuan, an increase of 70% to 85% over the same period last year. It is estimated that the impact of non-recurrent profit and loss on the company's net profit in 2020 will be about 370 million yuan. The company's operating cash flow is expected to be positive in 2020.

With the continuous progress of strategic transformation, the proportion of traditional business has further shrunk: the company has a non-recurrent profit and loss of about 370 million in 2020, mainly due to the transfer of control benefits of traditional business subsidiaries. The company has successively announced the transfer of some shares of Kaifeng Yixin data Lake Information Technology Co., Ltd., Yihualu International, Beijing Gaocheng Technology, and Northeast Yihualu, a holding subsidiary; in addition, at the end of October, the company announced that the holding subsidiary Hualu Yiyun publicly listed to increase capital and introduce strategic investor Baidu, Inc.. The company's strategic transformation is progressing smoothly, and in 2020, it further reduced its resource investment in the traditional mode of intelligent transportation, security and other business subsidiaries. The performance of the company's traditional business subsidiaries has declined significantly, through the active introduction of strategic investors to enhance technological strength and market share.

The city covered by the data lake has increased rapidly, and the amount of data entering the lake has increased rapidly: in 2020, the city covered by the company's data lake has increased rapidly, the amount of data entering the lake has gradually increased, and the data value-added products and applications have been enriched continuously.

(1) during the transition period, the data Lake business accounted for a significant increase in the company's revenue: the company's digital economic infrastructure business and data operation and service business accounted for more than 71% of the total revenue in the first half of 2020. The company's combined income of the two business sectors accounted for 57% in 2019, compared with the second half of 2020. The company has successively set up six urban data lake project operation companies, including Liuzhou in Guangxi, Pu'er in Yunnan, Yaan in Sichuan, Anqiu in Shandong, Zibo in Shandong, and Xiangyang in Hubei.

(2) in addition, the company continues to increase investment in research and development, and the proportion of output of self-research software and products continues to increase, leading to a further increase in the gross profit margin of the data Lake business. The gross profit margin of the company's digital economic infrastructure business in the first half of 2020 is 59.23%. An increase of 8.87 percentage points over the same period last year The company's comprehensive gross profit margin in the first half of 2020 was 44.37%, up 5.17% from the same period last year, and 45.72% in the first three quarters of 2020, up 16.44% from the same period last year.

In the first half of the year, affected by the epidemic, construction delivery and revenue recognition, Q4 improved, and the drainage of the data lake gradually increased:

We see that the company has set up 15 data Lake project operation companies this year, mainly in May-June and September-November, while last year the company set up a total of 9 data Lake project operation companies, which are evenly distributed throughout the year. Therefore, taking into account the construction and implementation cycle of the data Lake project, from the perspective of revenue recognition, we believe that the increment of the related data Lake business in the company's revenue in the first half of the year is limited compared with the same period last year. We expect that it will be gradually reflected in the revenue recognition from Q4. In addition, we believe that the company's data operation and service business is quite bright. While the revenue from digital economic infrastructure business decreased by 8.5% in the first half of this year, the revenue from data operation and service business increased by 21.8% compared with the same period last year. It shows that the company's data lake drainage and related data assets operation progress is accelerating. We are optimistic that the company will expand the closed loop of the data lake model based on data storage, collection and development in the future.

Profit forecast and investment advice: we are optimistic that the company will rely on the advantages of Blu-ray storage, fully enjoy the market dividend of digital China construction with the data Lake strategy, and join hands with a number of partners to build a data lake ecosphere. And transform the business model from traditional solution business to product sales and data operations and services. Taking into account the impact of this year's epidemic on the construction progress and revenue recognition of the company's data Lake project, as well as the company's increased contraction rate of traditional business, we have adjusted the revenue structure forecast and related gross profit margin forecast of the company's traditional public security informatization, data operation and service, and digital economic infrastructure this year. It is predicted that the return net profit of the company from 2020 to 2022 is 683 million yuan, 859 million yuan and 1.158 billion yuan respectively, and the corresponding EPS is 1.05,1.32,1.78 yuan respectively. Considering that there is a large proportion of non-recurring profit and loss in the company's net return profit in 2020, it is more incomparable to directly take the comparable company's PE valuation as a reference, so we use the PEG based on the expected compound growth rate of EPS in the next two years for valuation comparison. With reference to the PE/G valuation of the comparable company in 2020, the company is given a PE/G of 1.11-1.39 times. It is considered that the reasonable market capitalization of the company is 22.864 billion-28.58 billion yuan, and the reasonable value range is 35.19 yuan / share-43.98 yuan / share, maintaining a "better than the big market" rating.

Risk Tip: the risk of the company's Blu-ray storage-related business expansion is not as expected.