The company released its 2020 interim report. Revenue for the reporting period -0.53% year-on-year was -0.53% to $235 million, and net profit was +2290% year-on-year to $502 million, which is at the median level of the previous forecast. Looking ahead, the company has strategically divested its loss-making business, focusing on the main optical business. Performance is expected to continue to pick up. We maintain the company's EPS forecast for 2020-2022 at 0.57/0.77/ 0.94 yuan, and maintain the “buy” rating. Focusing on the main optical business, the company achieved net profit of 502 million yuan in 2020H1, in line with previous guidelines. The company's 2020 H1 revenue was -0.53% year over year to 24.365 billion yuan, and net profit was +2290% to 502 million yuan, which is at the median level of the previous forecast. On a quarterly basis, Q1/Q2 revenue was 98/137 billion yuan, -8/ +6% year on year, respectively, and net profit was 14/360 million yuan, +155%/30%, respectively. The continuous improvement in the company's overall profitability is mainly due to (1) the company promoted the resumption of work and production in the context of the pandemic while strengthening cost and inventory management; (2) divesting the touch business to focus on the main optical business. The retained touch business benefited from product sales growth and business structure optimization for major customers, while increasing shipments of high-end optical modules and lenses also contributed to incremental performance. By business, in terms of revenue, the 2020H1 optical optoelectronics business (camera modules, lenses, touch products) was -2.30% to 18.197 billion yuan, of which non-Android camera module revenue was 3.7 billion yuan, +96% year over year, mainly due to the increase in orders from major customers and the increase in the company's dual camera share; microelectronic products (fingerprint recognition, 3Dsensing) compared to -3.29% to 4.46 billion yuan, of which 3Dsensing was +80% to 1.8 billion yuan, mainly due to the increase in orders from major customers and the increase in Android penetration rate; The smart car business was -35.14% year over year to 132 million yuan. Looking forward to the future, although the COVID-19 pandemic stage has affected the company's performance, the company is actively promoting the resumption of work and production. At the same time, its business is further focusing on optics, expanding 3Dsensing, automotive and other businesses horizontally, and expanding upstream lens products vertically. In the future, it will build a microelectronics innovation platform based on the optical circuit. Gross margin increased to 10.77%, and operations continued to be optimized after asset divestment. The company's 2020H1 overall gross margin was +0.69pct to 10.77% year on year. Among them, the gross margin of the optical optoelectronics business (77.55% of revenue) was +1.15pcts to 10.06% year on year, and the camera module business for major international customers increased significantly, with gross margin of +11.24pcts to 10.94%; microelectronics products (accounting for 19.03%) gross margin -0.22pct to 14.21% year on year, of which 3Dsensing gross margin was +12.53pcts to 12.23% year on year. On the cost side, the company's three-fee ratio was -0.46pct to 4.34%, the sales/management/finance expense ratio was -0.12/-0.01/-0.33pct year-on-year respectively, the company's 2020 H1 R&D expenses were -8% year-on-year to 914 million yuan, and the cost rate was -0.25pcts to 3.04% year-on-year. The company's cash flow performance continued to improve. Net operating cash flow reached 1,637 billion yuan, +21.62% year-on-year, while cash on hand also reached 3.89 billion yuan, laying the foundation for subsequent industrial layout and capacity expansion. The main optical industry: camera modules, fingerprint recognition, and smart vehicles help growth. (1) Camera business: 2020 H1 Android devices shipped 292 million units (+25% year-on-year), non-Android devices 55 million units (+30% year-on-year). We currently expect the company's single camera production capacity to be about 35 kk/month, double camera 20 kk/month, and triple camera 5 kk/month. Looking ahead to 2020, the penetration rate of three cameras and above on mobile phones is expected to be +20pcts to about 40%, while the unit price will increase several times compared to dual cameras. The company is one of the few domestic manufacturers with high-end multi-camera production capacity, and production capacity is expected to continue to increase in 2020; (2) Fingerprint recognition business: 2020H1 shipments of 116 million pieces (-9% year-on-year), mainly due to the contraction of the traditional capacitive fingerprint market, while the penetration of off-screen fingerprints falls short of expectations; (3) In-vehicle business: The company's business includes ADAS and in-car cameras, and has now achieved more than 20 domestic companies car The manufacturer's supplier qualifications and the acquisition of Fuji and Tianjin have also further strengthened the company's layout in terms of in-vehicle cameras, and it is expected that the revenue ratio of the automobile business will gradually increase in the future. Industrial layout: Deeply cultivate the optical circuit, extend 3Dsensing horizontally, and expand upstream lens business vertically. 3Dsensing: 2020H1 shipped 44 million units (+81% year-on-year). The company has the production capacity of 3D structured light and ToF modules, and is the main supplier of 3Dsensing modules in China. As mobile phone brands accelerate the integration of ToF functionality, companies are expected to benefit. Lens business: 2020H1 shipments reached 91 million units (+13% year over year), including 89 million mobile phone lenses (+17% year over year). We expect the company's current lens production capacity to reach 25-30kk/month, which is expected to reach 40-50kk/month by the end of 2020, and further increase to 60-70kk/month or more in 2021. Risk factors: industry demand falls short of expectations, core client revenue falls short of expectations, increased competition has led to a decline in gross margin, and the consumer electronics industry continues to decline. Investment suggestion: The company is a leader in domestic consumer electronics optical modules. After divesting the loss-making business, the company further focused on the main optical business. Optical innovations such as multi-camera, 3Dsensing, and under-screen fingerprinting continue, and the company's performance is expected to pick up. We maintain the company's EPS forecast of 0.57/0.77/0.94 yuan for 2020-2022. Considering the company's divestment of loss-making business, we also plan to further focus on the main optical business, lay out lenses+modules vertically, and expand automotive, 3D and other businesses horizontally to open up long-term growth space, give 35 times PE in 2021, corresponding to the target price of 27.00 yuan, and maintain the “buy” rating.