Events: In the first half of 2019, the company achieved operating income of 1,790 million yuan, a year-on-year decrease of 2.11%; realized net profit attributable to the parent company of 155 million yuan, a year-on-year decrease of 35.88%; realized net profit of 148 million yuan after deduction, a year-on-year decrease of 38.59%; net cash flow from operating activities was 132 million yuan, a year-on-year increase of 1953.56%; and achieved an EPS of 0.23 yuan, a year-on-year decrease of 34.29%. Comment: The supporting capacity of the military business has been enhanced, and net profit has increased significantly. With R&D investment and the successful finalization of new products, the overall supporting capacity of the company's military electronics business has increased. In the first half of 2019, the military industry business achieved operating income of 268 million yuan and net profit of 54.15 million, with year-on-year increases of 129% and 76%, respectively. In the first half of the year, Wolters Electronics contributed more than 17 million dollars in net profit, an increase of 150% over the previous year. Shaoguang of Changsha contributed more than 36.8 million dollars in profit, an increase of 55% over the previous year. The overall gross margin of military products fell 14.60 percentage points from last year to 36.85%, mainly due to the increase in operating costs due to the merger of CLP Huaxing in the consolidated report, and the lower gross margin of Huaxing products. Overall, the company's military business has shown a steady growth trend. On the one hand, this is due to the continuous increase in the penetration rate of the original products, and on the other hand, the company is increasing R&D investment and market expansion of new products. We believe that the company's military electronic products are upstream core components of national defense informatization, and technical barriers are high. Benefiting from the acceleration of military informatization construction, future orders will remain full. The average sales price of chemical products declined, and net profit fell 52% year on year. In the first half of the year, the company's chemical business achieved revenue of 1,522 billion yuan, a year-on-year decrease of 11%; net profit of 100 million yuan, a year-on-year decrease of 52%. Mainly affected by declining industry sentiment and macroeconomic fluctuations, the company's average sales price of chemical products declined to varying degrees. Compared with the first half of 2018, the average sales price of caustic soda fell 13.5%, propylene oxide fell 14.46%, polyether fell 14.11%, and benzene chloride fell 22.60%. The overall gross margin of the chemical business fell 6.38 percentage points year over year to 18.50%. We believe that although the prosperity of the company's chemical business has weakened, the company continues to implement refined management, cost reduction and efficiency, to a certain extent, mitigating the risk of a sharp decline in performance due to the downturn in the industry. After environmental protection regulations continue to be strict and the supply and demand pattern gradually stabilizes, the chemical business is expected to stabilize, and will remain the company's main cash flow contribution point in the future. The controlling shareholder plans to change to the Wuhan State-owned Assets Administration Commission to greatly optimize the company's capital structure. Wuhan Credit Group plans to invest in listed companies through debt restructuring. After the transfer is completed, Wuxin Group will hold 22.49% of the shares of the listed company and the remaining 6.25% of Xinyu Haoyue's shares. Wuhan Credit Group has obtained actual control of the listed company. The actual controller is the Wuhan State Assets Administration Commission. Wuhan Credit Investment Group belongs to the Wuhan State-owned Assets Administration Commission, which also indirectly controls another listed company, Dalian Friendship (000679.SZ). After the restructuring is completed, Wu Xin Group will maintain the stability of its current management team. Xinyu Haoyue promised that the non-net profit deducted by listed companies in 2019, 2020 and 2021 will not be less than 350 million yuan, 400 million yuan and 450 million yuan respectively; and operating cash flow will not be less than 250 million yuan, 290 million yuan and 320 million yuan, respectively. If the operating performance indicators of the listed company for any year are not completed, then Wuhan Credit Group has the right to terminate the above business cooperation plan. We believe that Wuhan's state-owned investment in listed companies will greatly optimize the company's capital structure. After restructuring, the listed company will become a local state-owned enterprise holding status, which will give full play to the resources and management advantages of state-owned enterprises and provide all-round support for the development of listed companies in terms of industry, capital, and talent. At the same time, maintaining the stability of the current management team of Wuxin Group will also help the company continue to implement the “chemical+military” dual industry development strategy. Continue to follow the military electronics industry chain layout and build an autonomous and controllable chip industry chain. The company has successively completed the extended acquisitions of Shaoguang in Changsha, Wolters Electronics, CLP Huaxing, and Jiujiuanshields, which revolves around the in-depth layout of the military electronics industry chain. If Guoguang Electric and Cisco Rui are successfully acquired this time, the company's autonomous controllable chip industry chain will be further improved. Guoguang Electric, which the company plans to acquire this time, is a key construction aid project of the Soviet Union during the “First Five-Year Plan” period. It has made important contributions to national defense as a comprehensive microwave electron tube factory in China and a major national military enterprise, and has more than 60 years of technical experience in the industry. The company's many products, such as microwave vacuum devices, solid-state microwave devices, and special enameled wires, have achieved complete internal support capabilities, and are widely used in military fields such as satellites, radar, and nuclear physics. Among them, microwave vacuum device products are widely recognized in the industry. Guoguang Electric promised that the amount of net profit attributable to shareholders of the parent company in the consolidated statements achieved for each year from 2019 to 2021 after deduction will not be less than 80 million yuan, 100 million yuan, and 125 million yuan, respectively. Chengdu Cisco Rui's main business includes testing, screening, supervision and acceptance, failure analysis, and destructive physical analysis (DPA) of military electronic components. It is the “Chengdu Branch of the Beihang Inspection Station” authorized by the Electronic Components Reliability Management Center of the Aviation Industry Group Corporation. As a scarce target in the military integrated circuit testing industry, Cisco Rui will form a good synergy with the company's existing chip business. Cisco has promised that the net profit attributable to shareholders of the parent company in the consolidated statements achieved for each year from 2019 to 2021 will not be less than 70 million yuan, 84 million yuan, and 101 million yuan, respectively. Earnings forecasts and ratings. The company's chemical business will continue to contribute to stable cash flow; military chips and integrated circuits will benefit from autonomous, controllable and localized alternative policies for a long time. We are firmly optimistic about the company's future development prospects. We expect the company's operating income from 2019 to 2021 to be 3.7 billion yuan, 3.812 billion yuan, and 3,991 billion yuan respectively; net profit attributable to the parent company from 2019 to 2021 is 376 million yuan, 445 million yuan, 533 million yuan, and 533 million yuan respectively; EPS is 0.54 yuan, 0.65 yuan, and 77 million yuan respectively. The PE corresponding to the current stock price is 16 times, 14 times and 11 times, respectively, maintaining a “buy” investment rating. Risk warning: The debt restructuring failed; the acquisition fell short of expectations.