Performance summary: The company released the 2020 semi-annual report. During the reporting period, the company achieved operating income of 23.03 billion yuan, an increase of 0.55% over the previous year; realized net profit attributable to shareholders of listed companies of 773 million yuan, a year-on-year decrease of 38.93%, equivalent to an EPS of 0.30 yuan; and realized net profit deducted from non-return to parents of 767 million yuan, a year-on-year decrease of 38.3%. Production data: In the first half of 2020, the company produced 6.320,500 tons of iron, 6.913,100 tons of steel, and 4.1439 million tons of lumber, up 3.58%, 6.43% and 6.06% respectively over the previous year. Iron, steel and material production all slightly exceeded 50% of the target production limit for 2020. Due to the mismatch between the company's billet and steel production capacity, we use steel production to roughly measure the profit situation of tons of steel. The price of 2020H1 tons of steel is 3,328 yuan, the cost of a ton of steel is 3072 yuan, and the gross profit of a ton of steel is 256 yuan, down 195 yuan, 89 yuan, and 106 yuan respectively from the previous year. Financial data: The comprehensive gross profit margin of 2020H1 was 7.68%, down 2.58PCT year on year, mainly due to the decline in the sales price of tons of steel. In the first half of 2020, the comprehensive steel sales price was 3172 yuan/ton, down 273 yuan/ton year on year, a decrease of 7.93%. Even when sales volume increased 6% year on year, revenue increased only slightly year on year, while the cost side increased 3.4% year on year. The fee rate for the 2020H1 period was 3.75%, a slight increase of 0.09PCT over the previous year. Sales expenses increased 62.44% year on year mainly due to the need to reapply for railway transportation concessions. At the same time, financial expenses increased 57.02% year on year due to reduced interest income and increased exchange losses, and the cost of tons of steel decreased by 4 yuan to 125 yuan year on year. The 2020H1 net profit rate was 3.36%, down 2.17PCT year on year, and net profit per ton of steel fell 83 yuan to 112 yuan year on year. In addition, inventories in the first half of 2020 increased by 44.18% year on year. First, due to the impact of the epidemic, the company's stock of billets and finished materials was slightly higher than the same period in previous years. Second, mineral prices continued to show strong performance, and the company actively increased inventories at low mineral prices. Earnings in the second quarter increased sharply month-on-month: 2019H1 net profit fell 38% year on year. On this basis, 2020H1 net profit continued to decline 39%. The core reason for this is still the decline in industry sentiment. Looking at the specific quarter, Q2 achieved revenue of 12.316 billion yuan, an increase of 15.24% over the previous month, and achieved net profit of 608 million yuan, a sharp increase of 270% over the previous month. The sharp rise in the company's profit from month to month was mainly due to the impact of the epidemic in the first quarter, downstream shutdown demand contracted, and the production and sales base in the first quarter was relatively low, and net profit fell 57% year on year; in the second quarter, as the epidemic eased, demand for rushing to work began, production and sales increased by 580,000 tons and 630,000 tons to 2.36 million tons and 2.4 million tons, respectively, the highest values in a single quarter in the past three years, with corresponding increases of 32.3% and 35.6%. Participation in Guangxi Iron and Steel Group: On October 8, 2019, the 9th meeting of the 7th board of directors deliberated and approved a proposal to participate in the capital increase of Guangxi Steel Group Co., Ltd. with a total investment of 5.157 billion yuan (27.78% of shares). As of June 30, 2020, the company has actually invested 4.72 billion yuan, accounting for 26.68% of Guangxi Iron and Steel Company's paid-in capital. The No. 1 blast furnace system of Guangxi Iron and Steel Group's Fangchenggang steel base project was completed and put into operation on June 28 this year. 2020H1 achieved a net profit of 14 million yuan. The steel products of the Fangchenggang Steel Base mainly include high-strength rebar, alloy steel bars, high-quality wires, hot-rolled broadband steel, cold-rolled sheets, hot-dip galvanized coils and other steel used in construction, automobiles, machinery and other industries. After the Fangchenggang Steel Base project is completed and put into operation, it helps listed companies improve the existing product supply system, optimize product structure, and meet the diversified needs of customers. Investment suggestion: As a leading steel enterprise in Guangxi, the company's products are mainly bars and wires. Currently, the performance of demand-side real estate sales data is fair. If real estate sales remain relatively stable, combined with strong infrastructure, stability on the demand side will benefit the company's main business, but at the same time, current high inventories and high production are still in the game, suppressing the profitability of the industry. We expect the company's 2020-2022 EPS to be 0.64 yuan, 0.66 yuan, and 0.69 yuan, maintaining the “hold” rating. Risk warning: Demand is under pressure due to a sharp decline in the macroeconomy; supply-side pressure continues to increase.