The performance in 2019 fell short of our expectations

The company's 2019 income was 1.174 billion yuan, an increase of 19%, and the net profit was 77 million yuan, which was the same as the same period last year. The non-return net profit was 70 million yuan, an increase of 17%. The performance fell short of our expectations, mainly due to: 1) the impairment loss increased significantly compared with the same period last year, and 2) the implementation progress of the company's HVDC project was lower than we expected, of which the completion rate of the bid-winning BABA project in 2018 to the end of 2019 was only 29.3%. The company's 1Q20 income was 66 million yuan, down 67%, and the net profit loss of 24 million yuan was in line with our expectations.

Trend of development

Impairment and HVDC business order completion lag affect performance. The company lost 52 million yuan in value, double that of the same period last year. In addition, we believe that in 2019, the company's traditional communication power supply is coming to an end by 4G and the start-up of 5G has declined, while HVDC has been affected by the lower-than-expected progress of large orders on hand.

Communication power supply won the mobile tender 40% share, HVDC with "Panama" products are expected to usher in a new breakthrough. The company announced in March that it won the bid for 40% of the mobile communication switching power supply, including 362 million yuan of tax under the company's bid quotation. With the acceleration of the construction of 5G communication base stations throughout the year, we believe that the company will re-usher in high growth in the traditional communication power business.

In HVDC business, the company successfully developed "Panama" power system products during the reporting period, which integrates 10KV power distribution, transformer and HVDC, improving efficiency while reducing project volume and occupying an area of 50%. In 2019, the company successfully entered the Baidu, Inc. cloud computing data center project, benefiting from the acceleration of BAT data center construction, we believe that the company's HVDC business is expected to grow further driven by new products.

The charging pile benefited from the new infrastructure and entered the electricity exchange market of two-wheeled electric vehicles in the Ningde era. We believe that the company's charging pile business will benefit from the growth of the new infrastructure and the market-wide charging pile CAPEX led by the State Grid in 2020. At the same time, the company has announced that it has invested in Ningde Smart Holiday through capital increase, in which Ningde Smart Holiday is a joint venture between Hello Travel, Ningde Times and Ant Financial Services Group. The company will provide Zhiheng with two-wheeled electric car change cabinets, with Hello travel in the development of electric vehicles, we believe that there is a better medium-and long-term growth space.

Profit forecast and valuation

Taking into account the impact of the epidemic and the subsequent revision of the lower-than-expected progress of HVDC in 2019, we reduced our 2020 profit forecast by 10% to 193 million yuan and introduced 2021e forecast of 252 million yuan. Considering the valuation support of the company's charging pile business and data center HVDC business, the secondary power exchange market brings new growth points in the medium and long term, and we maintain the target price of 13.8 yuan. The current share price and the target price correspond to 2020, 2021e, 38, and 29x, respectively, with an upside of 5.2%, maintaining an industry rating that outperforms.

Risk.

The progress of the company's HVDC business was significantly lower than expected, and the sales of charging piles were significantly lower than expected.