The average selling price and gross margin of camera modules are being dragged down by weak demand for high-end smartphones. The off-screen fingerprint module business was blocked during the COVID-19 pandemic. Maintain the “hold” rating and raise the target price to RMB 16.60 (corresponding to 21 times the 2021 price-earnings ratio). OFIL's performance in the second quarter of this year was strong, achieving revenue that was 12% higher than Wande's unanimous expectations and net profit was higher than Wande's unanimous expectations by 26%. Capacity utilization increased in the second quarter, with gross margin reaching 11.2%, higher than Wande's unanimous forecast of 10.6%. Despite the good performance, we think we still need to be wary of the downside risks of the camera module and underscreen fingerprint module business. The average selling price and gross margin of camera modules are being dragged down by weak demand for high-end smartphones. In the first half of 2020, OFILM's Android HCM (mobile phone camera module) revenue fell 0.02% year on year to 11.7 billion yuan, but shipments increased 25% year over year to 292 million units, corresponding average sales price decreased 20% year over year. We think the sharp drop in average sales prices can be attributed to weak high-end smartphone shipments during the COVID-19 outbreak. Considering that the smartphone market may face stagnation in development this year, due to the limited impact of the pandemic on consumer purchasing power, mobile phone manufacturers need to reduce material costs, and smartphone camera specifications may be downgraded, we expect the average sales price and gross margin of HCM to continue to be under pressure. Then, with the easing of the epidemic, we expect the smartphone market to recover in 2021. Annual HCM shipments will increase from 706 million units in 2020 to 808 million units, but the average sales price is expected to stabilize at 44 yuan per unit. The off-screen fingerprint module business faced resistance during the COVID-19 outbreak. OFILM's fingerprint module revenue for the first half of 2020 was 2.7 billion yuan, a year-on-year decrease of 26%. The main reasons include: 1) increased competition in the off-screen fingerprint market put pressure on average sales price increases; 2) Affected by weak demand for high-end smartphones and the trend of downgrading smartphone configurations, the penetration rate of smartphones fell short of expectations. The 3D sensing business achieved revenue of 1.77 billion yuan in the first half of 2020, an increase of 80% over the previous year. However, given the current high level of penetration, we expect limited room for growth in this sector. Maintain the “hold” rating; raise the target price to RMB 16.60. After adjustments, our target price is RMB 16.60. The valuation is based on a 21-fold price-earnings ratio for 2021 and revised projected earnings per diluted share for 2021 ($0.79). At the same time, the earnings per share forecast for 2020-2022 were lowered by 8.9%/16.5%/16.9%, respectively. Main risks: (Upside factors) The market share of Apple's supply chain is increasing at an accelerated pace, and the penetration rate of 3D sensing is increasing; (downward factor) The COVID-19 pandemic continues to impact, and the fingerprint/3D sensing business falls short of expectations.