The company's profit in the first half of 2020 fell by 19%; the company's energy saving business grew steadily, and the power grid business was under pressure in the short term. The proposed acquisition of the remaining EMC assets of the State Grid is expected to resolve competition issues in the industry; maintaining an increase in holdings rating. Key points supporting ratings 2020H1 earnings fell 19% year on year: The company released its 2020 interim report. In the first half of the year, the company achieved operating income of 1,239 billion yuan, a year-on-year decrease of 0.06%, net profit attributable to shareholders of listed companies of 159 million yuan, a year-on-year decrease of 18.84%, and a year-on-year decrease of 18.94% in profit after deduction. Among them, 2020 Q2 revenue was 632 million yuan, up 0.22% year on year, up 4.12% month on month; profit was 52.61 million yuan, down 46.79% year on year, down 50.38% month on month. The energy saving business grew steadily, and profitability increased slightly: in the first half of the year, the company's energy saving business segment achieved revenue of 684 million yuan, an increase of 18.50% over the previous year, a gross profit margin of 36.56%, an increase of 1.07 percentage points over the previous year, and a slight increase compared to the level of 36.13% for the whole year of 2019. Judging from the asset situation of projects under construction and energy saving business, it is estimated that the new energy saving projects will mainly be put into operation in the second half of the year, and there is a high probability that the annual revenue plan of 1.4 billion yuan will be completed. Profitability of the power grid business was under pressure: In the first half of the year, affected by factors such as epidemic prevention and control and the downward adjustment of the national electricity price policy, the company's electricity sales business achieved revenue of 556 million yuan, a year-on-year decrease of 15.54%. Segment gross margin fell sharply from 6.84% to 0.97%, and profitability was significantly under pressure. Net operating cash flow decreased, and accounts receivable increased significantly: In the first half of the year, the company's net operating cash flow was 57.81 million yuan, down 83.27% year on year, of which inflows fell 35.69% year on year to 730 million yuan. In terms of balance sheets, the company's accounts receivable balance at the end of half a year was 612 million yuan, up 105% year on year, compared with 60.23% balance at the end of the first quarter. In addition, in the first half of the year, the company calculated credit impairment losses of $29.18 million, which also had a negative impact on overall profit to a certain extent. Competition in the industry is expected to be resolved: the company recently announced that it plans to issue non-public shares, of which 1,322 billion yuan will be raised to acquire energy-saving assets and related EMC contract rights and obligations of the Provincial Comprehensive Energy Company under the State Grid, which is expected to resolve remaining competition issues in the industry while increasing the company's overall profit volume. The valuation is based on the current share capital, taking into account the company's interim report, without considering the impact of additional acquisitions on performance. We adjusted the company's forecast earnings per share for 2020-2022 to 0.91/1.08/1.18 yuan (the original forecast data was 1.05/1.16/1.28 yuan), corresponding to a price-earnings ratio of 20.8/17.6/16.1 times; maintaining an increase in holdings rating. The main risks facing the rating The impact of the epidemic has exceeded expectations; the benefits of energy saving distribution projects have fallen short of expectations; the implementation of new projects and construction progress have been slower than expected; and the reduction in electricity sales prices has exceeded expectations.