At present, the company has sufficient orders on hand, and we expect that the high prosperity of the missile industry chain in 2021 will complement the company's equity incentive assessment goals. Under the guidance of preparation, as the leader of missile optical guidance, it is expected to fully benefit from the main logic of stock upgrade and incremental acceleration of guidance programs. It is predicted that the company's EPS in 2021-23 will be 0.98,1.56,2.00 yuan, maintaining the target price of 93.24 yuan, corresponding to 95 times PE valuation in 2021, and maintaining the "buy" rating.

2021Q1 got off to a good start with the release of pressure on its 2020 results. Recently, the company issued the 2020 annual report and the first quarter 2021 results forecast. In 2020, the company achieved revenue of 124 million yuan, a decrease of 35.25% compared with the same period last year, and the corresponding net profit was 24 million yuan, a decrease of 60.01% over the same period last year, mainly due to the backward adjustment of the development tasks of the overall unit and the delayed delivery and acceptance of products such as 2020H1 COVID-19 epidemic simulation and guidance.

It is worth noting that the company's sales expenses increased by 32.52%, mainly due to the fact that while the company continued to serve the Rocket Army during the reporting period, it increased its technical promotion to the air force, navy, army and other services to further expand customer coverage and lay the foundation for subsequent growth. According to the company's 2020Q1 performance forecast, the company expects revenue of 30 million yuan and corresponding net profit of 6.5 million yuan to 9.5 million yuan in the current quarter, an increase of 3.08% to 50.65% compared with 2019Q1 before the epidemic. Operation is back on track and profits exceed expectations.

Focusing on key technologies, laser weapons are expected to become a new growth pole. Under the influence of the rapid development of UAV, the demand for high-precision and low-cost air defense systems is being released rapidly, and the research and application of laser weapon systems are also promoted rapidly. During the reporting period, centering on the application requirements of laser countermeasure, the company conquered the key technologies in the fields of laser space beam combination technology and laser stray light suppression technology, and completed the dynamic tracking and pointing strike test of a certain platform, achieving the first breakthrough in China. The key technologies have been verified. In 2020, the company's laser weapon countermeasure system achieved revenue of 9.0896 million yuan, an increase of 1107% over the same period last year, and the initial volume of products was achieved. In the future, we will not rule out the possibility of jointly developing related products with the leading platform in the domestic laser countermeasure field to create a new growth pole of the company's business.

There are signs of an arms race, and the demand for optical guidance remains high. In 2020, as the first year of the withdrawal of the United States and Russia from the "medium guidance contract," signs of an arms race among the superpowers emerged, and a number of hypersonic missiles of the United States and Russia continued to carry out tests, leading to an increase in the demand for multimode and composite guidance technology. The Central military Commission of our country has also clearly defined the goal of strengthening the army and continuously strengthened preparations for war with a clear orientation. As the core equipment with strong consumption attribute, the missile is expected to maintain a high boom in the next 3-5 years. As the leader of optical guidance, the company is expected to fully benefit from the gradual upgrading of the current stock of missiles to infrared / radar dual-mode guidance, as well as the demand-side main logic brought about by infrared guidance in new models.

Risk factors: the epidemic affects the production and delivery of products, and the capacity expansion is not up to expectations.

Investment advice: at the current time, the performance pressure of the company affected by the epidemic in 2020 has been fully released, and the business situation is back on track. The company has sufficient orders on hand, and we expect that the high prosperity of the missile industry chain in 2021 will complement each other with the company's equity incentive assessment goal, and the certainty of high growth throughout the year is strong. We adjust the company's EPS forecast to 0.98,1.56 and 2.00 yuan from 2021 to 2023 (the original EPS forecast for 2021 in 2022 is 1.58 yuan, and the new forecast is 2023). In view of the fact that the company's performance in 2021 is expected to achieve higher-than-expected growth, and 2021 officially opened the missile industry chain revenue recognition year, maintaining the target price of 93.24 yuan, corresponding to the 2021 95 times PE valuation, maintaining the "buy" rating.