Company Profile

DuoLun Technology Corporation Ltd., formerly Nanjing Doron Technology Co., Ltd., is a China-basedcompany engaged in the development of system for drivers training and examination. The Companymainly involves in the research and development, production and sales of motor vehicle driversintelligent training and examination, intelligent transportation products and driving simulationtraining system, among others. The Company's driving examination system is divided into automobileexamination system and other vehicles examination system. Its urban intelligent traffic managementsystem includes intelligent traffic management platform system and other intelligent transportationsubsystem. (Source: Reuters)

Investment Highlights

Event: DuoLun Technology (the company) released its 2019 annual financial reports, showing a CNY698 mn operating revenue (+26.86% YoY) and CNY 153 mn net profit attributable to shareholders(+13.65% YoY).

Three major business groups make concerted efforts to promote development strategy successfully.

By businesses, motor vehicle drivers intelligent training and examination generated CNY 65.39 mnrevenue, surging by 152.4% YoY. Urban intelligent transportation products received CNY 144 mnrevenue, skyrocketing by 394.7% YoY. In terms of smart vehicle inspection, the company bought 65%equity of Shandong Jianlan and 55% equity of six vehicle inspection stations in Zaozhuang, ShandongProvince, so as to realize the simultaneous layout of equipment end and operation of vehicleinspection stations. The company collected a CNY 6.25 mn revenue from the business for the firsttime in 2019. We are optimistic about its future performance hike.

The company well controlled expenses, although its gross margin edged down.

In terms of expenses, the company's sales expense ratio, administrative expense ratio and financialexpense ratio were 9.90%/11.05%/-1.16% respectively, down by 1.20/0.94/0.29 pct YoY. The companyshowed a healthy cost control.

In terms of gross margin, the company's total gross margin stood at 50.80%, down by 9.07% YoY,mainly because the intelligent driving test and intelligent transportation were in construction andexpansion period. With the launch of driving test cloud platform, the construction andimplementation of intelligent transportation projects and the operation of intelligent vehicleinspection, we expect the company’s gross margin to be improved in the future.

Intelligent motorcycle test filled the gap in the industry, and cloud driving training and examinationservice enhanced customer acquisition ability.

At the end of 2019, the company launched the intelligent motorcycle test system and passed theinspection of the Ministry of public security. With the gradual incorporation of electric bicycles intomotor vehicle management, the business is expected to become a new growth point of thecompany's revenue in the future.

The new mode of cloud driving training service greatly enhances the ability to obtain customers. Bythe end of 2019, the number of registered driving schools, coaches and students on the company’splatform has increased by 13.99%, 48.42% and 160.23% year on year, and active users excess 40million.

Earnings forecast and investment recommendation

We estimate the company’s net profit attributable to shareholders to be CNY 187/225/267 mn foryear 20/21/22. We maintain “Outperform” rating.

Potential risks: slower construction of driving test system; poorer-than-expected R&D and promotionof driverless technology; intensifying competition of intelligent transportation