Events: In the first half of 2020, the company achieved operating income of 300 million yuan, +8.26% year-on-year; realized net profit of 26 million yuan, -90.63%; realized net profit after deduction of net profit of 225 million yuan, +80.52% year-on-year. The second quarter alone achieved operating income of 173 million yuan, +18.13% year-on-year, +36.47%; realized net profit of 316 million yuan, -94.14% year-on-year, +57.62%; and realized net profit after deduction of 16 million yuan, +100.43% year-on-year, and +66.08% month-on-month. The expansion of the scale of the industry has led to the rapid expansion of the semiconductor materials business, and the transformation and upgrading of the company's fluorocarbon coating business. In the first half of the year, the company achieved both revenue growth and net profit after non-return, and gross margin increased by 2.95 pct to 34.55%. By business sector, the semiconductor business revenue was 140 million yuan, +34.13% compared to the same period last year. Among them, it is worth noting that wafer ultrapure chemical materials products continue to be recognized by more and more customers. As the scale of the industry expands and localization substitution accelerates, revenue has grown rapidly, reaching 55 million yuan, +97.55% over the same period last year. As a leading semiconductor material in China, according to announcements, the sales volume and market share of functional chemical materials in the traditional packaging field has remained number one in the country for many years; chip copper interconnect electroplating solutions and additives, and post-etching cleaning solutions, which are key materials for IC manufacturing, have achieved large-scale industrialization; currently, the development of the third largest core technology, lithography technology, etc., has made major breakthroughs in high-end photoresist fields such as ArF dry method, KrF thick film adhesive, and I wire for IC manufacturing. In terms of paint business, the company achieved revenue of 148 million yuan in the first half of the year, a slight decrease of 9.62% from the same period last year. However, the company continued to accelerate the transformation and upgrading of fluorocarbon coating product structure, develop high-quality and efficient fluorocarbon powder coatings to improve energy saving and environmental protection, and expand downstream. The company's net profit after the merger fell sharply compared to the same period last year. The main reason is that the investment income generated by the company's asset replacement during the same period last year had an impact of 262 million yuan on net profit. It is planned to enter the field of chemical machinery polishing fluids and enrich the layout of key materials for IC manufacturing. China's IC industry is currently in a critical period of development, and the semiconductor materials industry has also entered a period of rapid development. The market demand for chemical mechanical polishing fluid (CMP Slurry) products for semiconductor chip production is huge, but it is mainly monopolized by Japanese and American companies, and there is a shortage of domestic suppliers. According to the announcement, the company signed a “strategic cooperation agreement” with Shanghai Huiyan to cooperate on the development, production and sales of polishing liquid: Shanghai Huiyan has a polishing liquid product research and development team, and has proprietary technology such as polishing liquid product development, production process technology and quality control, and customer technical service capabilities; the company has basic conditions for the production of polishing liquid products and product sales channels. This cooperation will integrate the resources of the two parties, give full play to their respective advantages, achieve mutual benefit and win-win situation, accelerate the development and industrialization of polishing fluid, and help domestic replacement of key materials in China's semiconductor industry. Under the same control, the shares of Microchip were transferred to relieve financial pressure in the short term and incubate ArF wet photoresist over the long term. According to the announcement, the registered capital of Xinke Micro, a subsidiary of the listed company, was increased from 100 million yuan to 150 million yuan, the additional registered capital was fully subscribed by Chaocheng Technology, which is under the same control, and the listed company will transfer 28.67% of Xinke Micro's shares to Chaocheng Technology for 0 yuan. After the capital increase and equity transfer were completed, Xinke Micro's equity structure was changed to: listed companies hold 38% of the shares and Chaocheng Technology hold 62% of the shares. ArF wet photoresist products used in IC manufacturing have high technical requirements, long R&D cycles, and high investment requirements. Core Carving has not yet achieved profit. The current performance of listed companies is not enough to support the development of this product. Therefore, listed companies carry out product research and development by introducing joint funding from partners. On the one hand, it can increase investment in high-end photoresist products, and on the other hand, relieve financial pressure. In the future, Microchip will only carry out research and development of ArF wet photoresist projects, and all assets, personnel, contract rights and obligations related to ArF dry photoresist will be transferred to listed companies. In addition, if ArF wet photoresist is successfully developed, the listed company will re-control Microchip, and Microchip will transfer relevant technology and patents to listed companies and grant exclusive licenses, which will have a positive impact on the performance of listed companies. Investment advice: Increase holdings with an investment rating of -A. We expect the company's net profit from 2020 to 2022 to be 0.85, 1.03, and 135 million yuan, respectively. Risk warning: New product development and industrialization fell short of expectations; product prices fell sharply.