Overview of events:

The company released its annual report on April 10 that its operating income reached 8.533 billion yuan in 2020, an increase of 20.81 percent over the same period last year, the net profit of its mother was 369 million yuan, an increase of 9.94 percent over the same period last year, and non-net profit was 300 million yuan, an increase of 13.85 percent over the same period last year.

Xinchuang volume has brought eye-catching performance, and network security and independent controllable business have risen strongly. With the weakening of the impact of the epidemic, the performance of Taiji shares Q4 increased rapidly, with revenue of 3.808 billion yuan, an increase of 53.64% and a ring increase of 120.46%, and a net profit of 291 million yuan, an increase of 12.13% and a ring increase of 418.67%. The company's main business can be divided into the following four categories: the annual revenue of network security and self-controllable business is 3.122 billion yuan, up 71.11%, and the performance is the most outstanding; cloud service business revenue is 676 million yuan, up 8.10%; intelligent application and service business revenue is 1.614 billion yuan, up 11.89%; system integration service business revenue is 2.988 billion yuan, down 3.55% from the same period last year. The outstanding performance of the company mainly benefits from the volume of Xinchuang industry. The contract amount of Taiji shares' Xinchuang business over the past 20 years is nearly 7 billion yuan. 2020 as the first year of China's Xinchuang industry, the prosperity of the industry continues to improve and the pace of localization substitution is accelerating. Taiji shares as the leading enterprise in the industry, its business growth is expected to be maintained.

Continuous investment in R & D and high increase in operating cash flow. 1) profitability: the company's 20-year gross profit margin was 22.69%, a decline in 1.83pct, mainly due to gross margin fluctuations caused by business structure adjustment The net profit rate of sales is 4.37%, a decrease of 0.44pct, which is less than the gross profit margin, mainly due to the improvement of the company's overall management ability. The company's management expense rate for 20 years is 9.96%, with a decline in 2.25pct. In the future, with the horizontal migration and expansion of the company's business, its scale effect will continue to be prominent, and profitability is expected to further improve. 2) R & D: the company increased its investment in big data, artificial intelligence, industrial Internet, cloud computing and other fields. The annual R & D expenditure reached 598 million yuan, an increase of 40.91%, accounting for 7.01% of the annual revenue. The number of R & D personnel reached 2057, an increase of 11.37%, accounting for 42.48% of the total number of the company. In the past 20 years, the company has added 24 patents and released three general-purpose products: Taiji inf-link Internet of things platform, Taiji Streaming streaming data processing platform and Taiji Cloud Management platform. 3) in terms of cash flow: the cash flow generated by the company's operating activities has greatly improved compared with 19 years, with a net amount of 1.084 billion yuan at the end of the year, an increase of 483.63%, mainly due to a substantial increase in the collection of the company's projects. With the completion of digital transformation and the improvement of industry status, the profitability and payback ability of Taiji shares are expected to remain strong.

The share of Jincang of the National people's Congress is in the lead, and Kingdee Tianyan develops steadily. 1) as the core layout of the company in the database field, Taiji shares hold 33.50% of its shares. In the past 20 years, people's Congress Jincang has released the database migration evaluation system KMDS and the cloud database service platform KRDS, which can help customers achieve rapid database migration and cloud services. According to the company's annual report, its database products have more than half of the market share and become a benchmark in the industry, and may become a new revenue growth point for Taiji shares in the future. 2) Kingdee Tianyan is the core layout of the company in the field of middleware, and Taiji shares hold 21.00% of its equity. Butterfly Tianyan, a 20-annuity pension, achieved a revenue of 78.19 million yuan, down 11.60% from the same period last year, and the net interest rate turned from a loss to a profit of 9.24 million yuan. It has complete independent intellectual property rights, based on financial application, integrates big data and middleware technology, and launches "Tianyanyun" products to promote the innovation level of government digital services. The company's early accumulation in the field of middleware and cloud technology is now gradually entering the harvest period.

Customer resources build the company's moat, technological advantages open the ceiling of development. China Dianke positioned Taiji shares as the core industrial platform of the group's network letter business, gave it full support, and constantly injected new business resources into the company's development. Taiji shares have accumulated a large number of stable high-quality customers in government affairs, national defense and other fields, and good customer resources provide support for the company's steady development in the future. Under the background of the accelerated development of Xinchuang industry, the company relies on pre-R & D investment, equity investment and business accumulation to form a complete and advanced independent product system, with the technical level in the forefront of the industry. Relying on the leading system construction and service capabilities, the company is expected to accelerate its development in the process of the take-off of Xinchuang industry, and the industry potential will be further improved.

Company profit forecast and investment rating: we estimate that the company's return net profit from 2021 to 2023 will be RMB 456,000,000 respectively, and the corresponding EPS will be RMB 0.79max 1.01pm respectively. The current stock price corresponds to an annual PE of 26.81, 20.97, 16.04X, respectively. Be optimistic about the market space brought by the accelerated development of Xinchuang industry, and the industry leading position and subsidiary layout of Taiji shares, and maintain the "recommended" rating.

Risk hint: the development speed of Xinchuang industry is not as fast as expected; the industry competition is intensified; the synergy effect of the company's new and old business is not as expected.