The results in the first half of the year were in line with expectations, and the performance of Q2 grew rapidly in a single quarter: the company achieved operating income of 374 million yuan in the first half of 2020, an increase of 21.25% over the same period last year, and the net profit belonging to shareholders of listed companies was 68.6625 million yuan, an increase of 4.84% over the same period last year. In the first half of the year, the company deepened the business layout of smart industry, smart energy and smart city, and continued to promote the "three nets" strategy of "Industrial Internet + City Internet + Energy Internet", achieving rapid revenue growth and steady increase in performance. Among them, the company achieved operating income of 246 million yuan in the second quarter of 2020, an increase of 32.95% over the same period last year. The net profit attributed to shareholders of listed companies was 57.9545 million yuan, an increase of 7.13% over the same period last year. The company's strategic business layout has entered the harvest period one after another. The net cash flow generated by the company's operating activities in the first half of the year was 8.2678 million yuan, down 66.98% from the same period last year, mainly due to an increase in operating expenditure over the same period last year. The company's gross profit margin for the first half of 2020 was 42.25%, down 2.41 PCT from the same period last year. Of this total, the industrial automation gross profit margin was 42.36%, a slight decrease of 2.26 PCT over the same period last year, and the industrial Internet gross profit margin was 42.57%, a slight decrease of 2.98 PCT compared with the same period last year. At the same time, the company's expenses in the first half of the year increased significantly compared with the same period of the previous year, of which sales expenses, management expenses and R & D expenses were 37.2563 million yuan, 22.1383 million yuan and 33.1118 million yuan respectively, with year-on-year increases of 26.25%, 8.63% and 19.15 respectively.

Speed up the promotion of the "three nets" strategy, and continue to make progress in winning the bid in the first half of the year: the company continues to deepen the business layout of smart industries, smart energy, and smart cities, and further clearly build the "three nets".

The 3i strategy. In terms of business, the revenue of industrial automation in the first half of 2020 was 286 million yuan, an increase of 16.86 percent over the same period last year, accounting for 76.55 percent of revenue; the revenue of industrial Internet was 78 million yuan, an increase of 23.00 percent over the same period last year, accounting for 20.76 percent of revenue; and the revenue of smart energy was 9.0968 million yuan, accounting for 2.43 percent of revenue. Among them, the industrial Internet business continues to develop, and the solutions of intelligent electric power, intelligent chemical industry, intelligent metallurgy and other industries are outstanding. Smart Power Board successfully won the bid Xinhui Shuangshui 1x600MW ultra-supercritical plant bus unit DCS, Wujiang Shengze 2 × 6F, Datang Lishui 2 × 6F and other major DCS projects. Garbage and biomass successfully signed 35 DCS projects, and sales increased by 135% compared with the same period last year. Biomass power generation successfully entered Huaneng Group, garbage power generation continues to expand its share, and cooperation with key customers is further deepened. In the intelligent chemical sector, it successfully won the bid for Doramectin project of Lizhu Group (Ningxia) Pharmaceutical Company, realizing the company's first set breakthrough in the API project with verification demand, and laying the foundation for the promotion and application of the company's products in the pharmaceutical industry in the future. Intelligent metallurgical plate, to undertake the first unmanned material yard project, that is, Zhangjiagang Shagang East material yard stacker reclaimer intelligent remote operation project, in order to build an intelligent coal yard product chain to make up the deficiency. In addition, the company's urban Internet business and energy Internet business have made further development. Among them, the urban Internet mainly focuses on three major areas of smart city business: smart urban management, smart water, and smart park. In terms of energy Internet business, the projects previously developed and acquired are under continuous construction and are scheduled to be put into production for power generation and heating by the end of 2020. In addition, more than 10 projects are under active follow-up and negotiation.

Continuously increase R & D investment, EmpoworX industrial Internet platform has passed the national five-star test of the highest functional performance: the company has successively mastered a number of advanced core technologies in the industry through independent innovation and technology introduction, and put forward many excellent industry solutions, which have been widely used in the domestic industrial field. The company has a number of key laboratories, technology and research centers, a total of 168 authorized patents, 248 software copyrights, and has undertaken a number of national key plans and engineering projects. During the reporting period, the company continued to increase investment in R & D. in the first half of the year, the company's R & D expenditure totaled 33.1118 million yuan, accounting for 8.86% of business income. From January to June 2020, the company added 12 patents, including 6 invention patents. Under the protection of strong R & D strength, the company's strength in the industrial Internet field has been continuously recognized. On July 8, the working group of the Industrial Internet Industry Alliance released the news. After the testing and expert evaluation of the Institute of Information and Communication, the EmpoworX industrial Internet platform passed the national five-star evaluation, and it is the first enterprise in Nanjing to obtain the most advanced functional performance evaluation in China. Together with the first batch of 3 selected, a total of 8 industrial Internet platforms across the country have been rated five-star. According to the China Industry News, relying on its own precipitation in automation equipment and industrial control software, the EmpoworX industrial Internet platform has formed a perfect software and hardware data acquisition solution, which can adapt to a variety of industrial field protocols to achieve data collection and aggregation. Hardware intelligent gateways can directly transfer data from different types of devices to the cloud. Software solutions have tools for protocol conversion and adaptation, and have accumulated more than 100 protocol libraries. In addition, the platform can carry out the secondary development of a variety of protocols based on standard interfaces, adapt to users' private protocols based on protocol conversion tools, and software solutions can be deployed on edge-end data acquisition devices.

Investment advice: the company's semi-annual report results are in line with expectations, the project has landed one after another, and continue to be optimistic about the strategic layout of the company's "three nets". We predict that the EPS of the company from 2020 to 2022 is 0.68,0.82 and 0.95 yuan respectively, and the corresponding PE is 25.62,21.39and 18.50 times respectively. Maintain the "highly recommended" rating.

Risk tips: macroeconomic recession; project progress is not as expected; industry demand is not as expected.