In 2020, the company achieved operating income of 6.02 billion yuan, an increase of 5.2% over the same period last year, which was in line with expectations under the influence of the epidemic.

The revenue of the "three new" business reached 780 million, a sharp increase of 106.5% over the same period last year, accounting for 13%. The profit side is significantly driven by the optimization of business structure and the effect of cost control. Net profit increased by 62% to 662 million yuan over the same period last year, and profitability reached a new high. Short-term companies have been included in the Hang Seng Composite Index, Shanghai-Hong Kong Stock Connect and other indexes, and liquidity has been greatly improved. After China Mobile took a stake, the two sides have strong synergy in joint research and development, data operation and government-enterprise promotion. In order to maintain the "buy" rating, we are bullish on the steady growth of the company's BSS main business, OSS/DSaaS/ vertical industry, cloud and other new business for a long time.

Consolidate the foundation and cultivate the new, the performance of BSS recovers, and the "three new" business growth exceeds expectations. In 2020, the company's BSS business revenue reached 5.24 billion yuan, a slight drop of 1.9% compared with the same period last year. The company actively overcame the impact of the epidemic, made efforts to promote the progress of the project, and drove the recovery of BSS performance. In addition, the company's three major innovative businesses have achieved rapid growth and momentum began to be released, among which: (1) the company closely seized the opportunity of the integration of BSS and OSS in the 5G era to enter the market, and OSS network intelligent management achieved revenue of 248 million, an increase of 114% over the same period last year. (2) the revenue of DSaaS digital operation business reached 352 million, an increase of 131.7% over the same period last year. Based on Zhongtai product loading for vertical industry applications, the company effectively helps customers carry out digital operations, mine data value, increase revenue and reduce expenditure, and superimpose customers' increasing acceptance of results-oriented business model, driving DSaaS revenue growth. (3) the scale of cloud business revenue in vertical industries and enterprises reached 180 million, an increase of 63.7% over the same period last year. The impact of the epidemic has greatly affected the delivery and implementation of cloud business projects, but the short-term impact does not change the long-term cloud trend, and the business growth is expected to further accelerate in 2021. From the point of view of orders, the "three new" business orders increased by as much as 200% over the same period last year, accounting for more than 20% of the total orders, laying the foundation for future performance release.

The business of operators has grown steadily, and the market of non-operators has expanded smoothly. In 2020, the company's revenue from operators reached 5.716 billion yuan, a steady increase of 4.1 percent over the same period last year. Of this total, revenue from mobile was 3.841 billion, up 14.6% from the same period last year. After China Mobile takes a stake, the two sides have strong synergy in joint product research and development, data operation and government-enterprise promotion, and it is foreseeable that the share of mobile revenue will still increase. The non-operator market expanded smoothly, with non-operator customer revenue of 303 million, a year-on-year increase of 33.7%, accounting for 5%. The number of large enterprise customers reached 85, and the number of customers increased by 44.1% over the same period last year. We believe that with the strong momentum of DSaaS digital operations and cloud business in vertical industries / enterprises, non-operator revenue will continue to grow at a high rate and its share will further increase.

The effect of cost control is remarkable, and the efficiency of R & D is constantly improving. The company's cost reduction and efficiency results showed that the cost increased slightly by 2.7% compared with the same period last year, and the gross profit margin increased by 1.1pcts to 38.3%. In the cost structure, administrative expenses increased the most, reaching 9.9%. However, excluding the equity incentive costs at the end of the year, the increase of administrative expenses and the proportion of income decreased; on the R & D side, the company continued to strengthen the Sino-Taiwan technology system, focusing on the strategy of "one consolidation and three development". Incubation includes network intelligence / AI intelligence injection / platform empowerment / smart city / innovative application of nearly 60 5G industry products and solutions. In 2020, the company spent 840 million yuan on R & D, a slight decrease compared with the same period last year, and the rate of R & D expenditure remained stable at about 14%. With the continuous improvement of the company's future R & D efficiency, we believe that the R & D expenditure rate will remain stable; in addition, the company's sales expenses increased by 2.3% to 473 million yuan compared with the same period last year, mainly due to the expansion of the company's new business scale and the growth of manpower investment.

DSaaS digital operation business is expected to open up the company's long-term valuation space. The company's DSaaS (Data as a Service) business includes digital operation platform, big data analysis platform, AI China Taiwan and other products. After China Mobile takes a stake, the company is expected to rely on massive operator data, combined with big data, AI and other technologies, to help customers fully tap the value of data. From the point of view of the business model, customers continue to accept the business model based on results, and have a strong willingness to continue to use it. In the future, with the acceleration of the cloud process, DSaaS business is expected to open long-term valuation space.

Risk factors: operator 5G software investment is lower than expected; company DSaaS business growth, vertical industry expansion and enterprise cloud strategy are lower than expected; subsidiary Linkage goodwill impairment risk and so on.

Investment advice: optimistic about the steady growth of the company's BSS main business, the OSS/DSaaS/ vertical industry and the rapid growth of new businesses such as the cloud, we estimate that the company's net profit in 2021 and 2022 will be $739 million (the original net profit forecast for 2021 / 2022 is $818,906 million). Under the latest equity, the adjusted EPS forecast is 0.909 yuan, maintaining the "buy" rating.