Incident: Henghua Technology released the 2019 Annual Report & 2020 Quarterly Report. The company achieved operating income of 1,123 million yuan in 2019, a year-on-year decrease of 5.13%; net profit of 295 million yuan, up 8.62% year on year; net profit after deduction of 272 million yuan, up 3.61% year on year; EPS was 0.49 yuan/share; net operating cash flow was -64 million yuan, down 86.11% year on year. In the first quarter of 2020, the company achieved operating income of 72.01.59 million yuan, a year-on-year decrease of 34.31%; net profit to mother of 5.862 million yuan, a year-on-year decrease of 35.87%; net profit after deduction of 6.887 million yuan to mother, a year-on-year decrease of 25.98%. Non-recurring profit and loss included the company's donation of 2 million yuan to the Red Cross Society in Suizhou, Hubei to fight the epidemic. The design section performed well, and the electricity distribution business declined under the pressure of power system reform: judging from the revenue structure, the company's design section achieved revenue of 626 million yuan, an increase of 30.52% over the previous year, accounting for 15.21pct to 55.69% of total revenue, mainly because the company grasped the full application of 3D design opportunities for the State Grid to build new power transmission and transformation projects of 35 kV and above, focusing on expanding the 3D design software market. Sales of 3D design software products increased dramatically; the infrastructure management section continued to maintain steady development and implementation based on the company's control of project quality and risk Revenue was 263 million yuan, up 4.08% year on year; revenue from the electricity distribution sector was 180 million yuan, a decrease of -54.70% year on year. The electricity distribution business was delayed mainly due to high customer service uncertainty during the power system reform process; revenue from overseas and other businesses was 54.7514 million yuan, which was basically the same as last year. From a regional perspective, the company achieved major breakthroughs in central China and Northeast China, with sales growth of 319.02% and 153.08% respectively. The cost rate increased slightly during the period, and investment in BIM related technology research and development increased: in 2019, the company's cost rate (excluding R&D) was 11.63%, an increase of 1.84 pct over the previous year. Among them, the financial expense ratio was 0.30%, up 0.03 pct year on year, financial expenses were 3.395 million yuan, up 5.61% year on year, mainly due to the increase in interest expenses and exchange losses; the sales expense ratio was 3.70%, up 0.44 pct year on year, mainly the increase in service fees for outsourced products; the management fee ratio was 7.63%, up 1.01 pct year on year, management expenses were 85.61,000 yuan, up 9.31% year on year, mainly due to the increase in dividend payment costs. The amortization amount of equity incentive expenses this year was 3470.70 million yuan, to a certain extent It affected the growth rate of the company's net profit. In terms of R&D, the company increased its R&D investment in BIM-related technologies and products. The annual R&D investment was 110 million yuan, an increase of 16.36% over the previous year. The share of total revenue increased by 1.87 pct to 9.78%, and the capitalization rate was 0%. Currently, the BIM engine 1.0 version and Fweb 3.0 application rapid development platform released by the company enhance rapid product development, reuse of key technical components, and low-cost implementation and maintenance capabilities. They have been initially applied in various projects in the field of transportation construction, and will also form important support for the company's in-depth application in other industries in the future. The rapid expansion of cloud platforms, and the resonance of old and new infrastructure helped the company grow: In the first quarter of 2020, due to the impact of the epidemic, acceptance and work settlement of some offline projects were delayed, showing a decline in the company's revenue and profit. However, the company gave full play to the advantages of cloud service platforms, carried out online marketing, and sales volume of commercialized 3D design software continued to grow, and its contribution to profits increased compared to the same period last year. At the same time, a free electricity+smart design service campaign was launched to meet the mobile office and collaborative resumption of work needs of design enterprises in the power industry. By the end of the first quarter, the number of registered users of the company's cloud service platform reached 69,207, an increase of 8.10% over the end of 2019, and the number of registered users of the Electronic+ Smart Link service cloud platform reached 36,969, an increase of 6.14% over the end of 2019. With the continuous improvement of cloud platform services, the company's growth space is expected to open up as new and old infrastructure processes resonate in the future. Investment advice: The company is expected to achieve operating income of 1,268, 14.89, and 1,781 billion yuan in 2020-2022, and achieve net profit of 383, 4.66, and 571 million yuan. EPS is 0.63, 0.77, and 0.94 yuan respectively, corresponding PE is 18X, 14X, and 12X, maintaining the “recommended” rating. Risk warning: The electricity reform process falls short of expectations; industry competition intensifies; Internet service transformation falls short of expectations; risk of a surge in bad accounts receivable.