Key investment points: Driven by chemical+military industries, industrial investment has helped Hangjin Technology continue to expand its territory in the basic chemical industry in the early days. The main products include caustic soda, propane oxide, polyether, liquid chlorine, chlorinated benzene, polyvinyl chloride, etc., which are widely used in steel, non-ferrous, chemical fiber, medicine, polyurethane, construction and other industries. In the second half of 2017, the company officially entered the field of military electronics, with the wholly-owned subsidiaries Changsha Shaoguang and Wolke Electronics as the main body, laying out core industrial chains such as R&D, design, packaging, testing, and multi-chip integration of military chips, building a strong competitive advantage for the company's military chips. The company continues to lay out the financial sector, and Zhuoding Investment, a wholly-owned subsidiary, focuses on investing in industrial chain enterprises in military related fields, helping the company continue to expand its industrial landscape. 2019H1 achieved operating income of 1,790 million dollars (-2.11%), net profit of 155 million yuan (-35.88%), and net profit of 148 million (-38.59%) after deduction of net profit of 148 million (-38.59%). ① The prosperity of the basic chemical industry has weakened, and the company strategically lays out the hydrogen energy industry. The chemical sector of 2019H1 had operating income of 1,522 billion yuan (-11.07%), net profit of 100 million yuan (-52.00%), and gross profit margin of 18.50% (-6.38pcts). Affected by the decline in the prosperity of the traditional chemical industry, compared to 2018 H1, the average sales price of the company's main chemicals declined. The company's largest product, caustic soda, fell 13.5% year on year, polyether fell 14.11% year on year, propylene oxide fell 14.46% year on year, benzene chloride fell 22.60% year on year, and all liquid alkali fell 13.51% year on year. We believe that although the company's chemical business has experienced a decline in performance due to the overall impact of the industry, the company continues to implement refined management, cost reduction and efficiency. At the same time, in addition to maintaining a leading regional advantage in the traditional basic chemical sector, the company is actively transforming hydrogen energy utilization and development. The company is based on hydrogen, a by-product of caustic soda. After drying and purifying by-product hydrogen in the original hydrogen filling workshop, the product purity standard reached 99.9%, which can meet the different needs of the market. On September 11, 2019, Hangjin Technology plans to use its own capital of 38.88 million yuan to build 3,000 nm^3/h High-purity hydrogen gas filling stations to accelerate the layout of the hydrogen energy industry. To a certain extent, the risk of a sharp decline in performance due to the downturn in the chemical industry can be mitigated. ② Entering military electronics, the scale of military business continues to expand. The military sector of 2019H1 had operating income of 268 million yuan (+128.93%), net profit of 54.15 million (+76.00%), gross profit margin of 36.85% (-14.60pcts). The main entities of the company's military electronics business are the wholly-owned subsidiaries Waco Electronics and Shaoguang in Changsha. Among them, on the basis of a single-chip chip, Wolters Electronics uses LTCC technology to integrate multiple chips. Hybrid integrated circuits supporting weapons and equipment are used in airborne radar, shipborne radar, satellite communications, electronic countermeasures, radar and terminal guidance, smart weapons, etc. Civilian products are mainly used in the fields of communications, medical electronics, industrial control, sensor technology, automotive electronics, power drives, and 2019H1 Weke Electronics' net profit is 18.6597 million; Changsha Shaoguang has core processes such as chip R&D, design, packaging and testing. The main anti-FPGA products include anti-FPGA, Non-volatile memory and bus interface circuits. The localized SG6931 graphics processing chip developed is used in the display control part of the main combat equipment to ensure that the chip of China's core military equipment can be autonomously controlled and not interrupted. Currently, it has been used in aerospace, weapons and other fields, and is expected to further expand weapon ancillary applications and civilian GPU markets in the future. The net profit of 2019H1 Changsha Shaoguang is 375.72 million. In addition to Wolters Electronics and Shaoguang in Changsha, the company indirectly holds products such as China Telecom Huaxing (51% shares) and Jiuqiang Information Shield (51% shares). China Telecom Huaxing specializes in modular power supplies, customized power supplies, high-power power power supplies and systems, which can serve industries such as aerospace, aviation, ships, railways, power and communications; Jiuqiang Digital Shield focuses on R&D and production of military and industrial information security products. Currently, it has reinforced notebook computers, reinforced tablet computers, autonomous security computing boards, and reinforced disk arrays, etc., and also accepts products based on the company's localization platform (Customization requirements for various products (Feiteng, Lianxin). We believe that the company has a deep layout around the military electronics industry chain, and that the scale of military electronics business will continue to expand in the future. It is proposed to acquire Guoguang Electric and Cisco Rui to continue to extend the military electronics industry chain. On June 3, the company plans to purchase 98.00% of the shares of Chengdu Guoguang Electric Co., Ltd. and 100% of the shares of Chengdu Sierui Microelectronics Co., Ltd. by issuing shares and paying cash. Founded in 1958, Guoguang Electric was one of the country's 156 key construction projects during the “First Five-Year Plan” period, and is also one of China's major microwave device development and production bases. Guoguang Electric's main business is divided into military business and civilian goods business. Among them, the military business is the R&D, production and sales of various military microwave electric vacuum devices and solid-state microwave devices. The company's products are widely used in electronic countermeasures, fire control, airborne, shipborne and weather radar. The civilian goods business is R&D, production and sales of vacuum switches and contactors, vacuum monitoring and control equipment, equipment products, packaging, and civil aviation airborne kitchen equipment. Guoguang Electric promised that the 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. Cisco's main business is to provide electronic component testing, screening, and destructive physical analysis (DPA) services to national defense and military customers. It has the ability to provide customers with electronic component quality and reliability testing, failure analysis, and environmental reliability tests and reports according to GB, GJB, IEC, MIL, SJ, and QJ standards or customized requirements. Cisco has promised that 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 RMB 70 million, RMB 84 million, and RMB 10.8 million, respectively. If this acquisition is completed, the company's military electronics business will cover the fields of electronic component screening and testing, integrated circuit design, computer components, microwave components, and power supply components, and will initially form a military electronics ecological chain with a complete system and business collaboration. The controlling shareholder plans to change to the Wuhan State-owned Assets Administration Commission. Wuhan Credit Group plans to invest in listed companies through debt restructuring. After this change in equity, Wuxin Group will hold 22.49% of the shares in the listed company and 6.25% of Xinyu Haoyue's remaining shares. The actual controller will be changed to the State-owned Assets Supervision and Administration Commission of the Wuhan Municipal People's Government. Wuhan Credit Group agreed to continue to maintain the existing management team to participate in the operation and management of listed companies after the debt restructuring is completed. Xinyu Haoyue promised that the non-net profit deducted from 2019 to 2021 will not be less than 350 million, 400 million and 450 million, respectively, and the operating cash flow will not be less than 250 million, 290 million and 320 million yuan, respectively. If the operating performance indicators for any year are not completed, then Wuhan Credit Group has the right to terminate the above business cooperation plan. We believe that if this debt restructuring is completed, the company's equity structure will be optimized, and the company's shareholder background will be changed to local state-owned assets. Listed companies are expected to use the resource advantages of local state-owned enterprises to receive support from industry, talent, capital, etc. At the same time, Wuhan Credit Group agreed to maintain the current management team, clarifying the company's future “chemical+military” two-wheel drive development strategy. Equity incentives boost company confidence. The company completed the registration of restricted stock grants for the 2018 equity incentive plan in August 2018, and decided to grant 18 million restricted shares to 348 eligible incentive recipients at a price of 6.20 yuan/share. According to the performance assessment schedule, the first performance assessment target for the period when sales restrictions were lifted is not less than 403.7 million dollars, and the net profit after deduction in 2018 is not less than 403.7 million, and the number of restricted stocks can be unlocked 12 months after the registration was granted; (According to the disclosure of the 2018 annual report, the non-return net profit of 410 million dollars was completed in the full year of 2018, and the performance assessment was completed.) The second assessment target for the lifting of sales restrictions is that the cumulative net profit after deduction in 2018 and 2019 is not less than 928.4 million, which can be unlocked 24 months from the date of completion of grant registration, accounting for 40% of the total number of restricted shares; the third assessment target is that the cumulative net profit after deduction in 2018, 2019, and 2020 is not less than 1,6106 million, and the number of unlocked shares can be unlocked 36 months after registration completion, accounting for 20% of the total number of restricted shares. We believe that the company's current stock incentive plan will increase employees' enthusiasm for work and protect the company's performance growth through the establishment of a long-term effective incentive system. Investment advice We believe that although the company's chemical business has been affected by the decline in industry prosperity, the chemical business has provided the company with stable cash flow; the military electronics business continues to benefit from chip localization and military informatization trends. Revenue for 2019-2021 is expected to be $3.737 billion, $3,908 million, and $4,078 billion, respectively. Assuming the completion of the acquisition of Guoguang Electric and Cisco Rui, according to the company announcement, the acquisition is intended to use the issued shares to pay transaction consideration of 1,222 million shares and the issuance of 114 million shares. We consider the share capital after issuing shares and carry out EPS amortization estimates. The net profit from 2019 to 2021 was 548 million, 614 million and 681 million yuan, respectively, and the diluted EPS was 0.68 yuan, 0.76 yuan and 0.85 yuan respectively. The current stock prices correspond to 14.27 times, 12.75 times and 11.50 times PE, respectively. Risk warning: There is uncertainty about debt restructuring; acquisition matters fall short of expectations; and there is a risk that basic chemical prices will decline.