Performance summary: 2020H1, the company achieved operating income of 290 million yuan, an increase of 59.9% over the same period last year; net profit of 70 million yuan, an increase of 245.1% over the same period last year; and non-net profit of 60 million yuan, an increase of 205.9%.

The performance is growing strongly against the trend, and the cost-side control effect is remarkable. The first half of 2020: 1) revenue: the company's overall strategic repositioning, deep ploughing as an entrance to the flow of intelligent environmental protection vertical track industry, structural adjustment and service model change led to a substantial increase in operating revenue, an increase of 59.9% compared with the same period last year. Among them, the company's smart environmental protection and smart city business achieved revenue of 260 million yuan and 20 million yuan respectively. 2) profit margin: the company's gross profit margin is 48.5%, an increase of 0.1 ppm over the same period last year; the net profit rate is 24.1%, an increase of 12.8pp over the same period last year, and the company's profit level is further improved. 3) in terms of expenses: the company's sales expense rate is 5.5%, the management expense rate is 9.1%, and the R & D expense rate is 7.7%. Compared with the same period of the previous year, the company's three expense rates have all decreased significantly, which is also an important reason for the substantial increase in the company's net interest rate.

Continue to increase investment in research and development, smart environmental protection and smart city verticalization to the next level. In the first half of 2020, the company's R & D investment reached 34 million yuan, an increase of 77.2% over the same period last year. The company makes use of the accumulation and technology accumulation of big data application industry of the Internet of things, seizes the policy opportunity of new infrastructure, and continues to expand R & D investment, which forms a strong guarantee for the company's future market expansion and business development. As of 2020H1, the company has been granted 79 patents and 305 software copyrights. 2020H1 added 4 authorized patents and 13 software copyrights. One utility model in the application marks a further vertical step of the company's core technology in smart environmental protection and smart city, and further strengthens the PAAS platform and SAAS application platform for the application of the Internet of things.

Smart environmental protection business benefits from the high prosperity of the industry. 2020H1, the proportion of the company's intelligent environmental protection revenue increased to 90.6%, an increase of 25.9pp over the same period last year, which shows that this business has become an important driver of the company's performance growth. Because the environmental protection data is externalized naturally, and the solution of environmental protection problems involves many departments such as environmental protection, housing construction, transportation and sanitation, the company chooses intelligent environmental protection as the flow entrance. and then gradually achieve the goal of extending from smart environmental protection to smart city. The field of smart environmental protection has maintained high growth recently. According to the foresight Research Institute, the compound growth rate of the intelligent environmental protection industry exceeded 19% from 2010 to 2018, and it is estimated that the growth rate will reach 13.2% in 2019. The company is expected to continue to benefit from the high prosperity of the industry.

Profit forecast and investment advice. It is estimated that the company's EPS from 2020 to 2022 will be 2.44,3.50,4.63 yuan respectively, and the compound growth rate of homed net profit will maintain 40% in the next three years. Cover for the first time, giving a "hold" rating.

Risk tips: macroeconomic downturn leads to lower-than-expected demand for downstream applications of the Internet of things; risks of new technology research and development and new product development of the Internet of things; intensified competition in the industry.