Event Overview COFCO Packaging released its 2020 interim report. 2020H1 achieved operating income of RMB 3,377 million/-8.3%; net profit of RMB 183 million/+7.4%. In the first half of the year, under the influence of the epidemic, the company's profit side achieved positive year-on-year growth, and performance exceeded expectations. In addition, the company plans to pay an interim dividend of 9.1 HK cents per share and announce a special dividend of 5.3 HK cents per share. Analysis and judgment: Revenue side: Performance improved in the second quarter, and the two tanks are expected to achieve rapid growth. By category, the 2020H1 tinplate/aluminum/plastic packaging business achieved revenue of RMB 16.63, 14.79, and 235 million yuan respectively, with year-on-year growth rates of -1.7%/-14.1%/-12.1%, respectively. Among them, 1) Aluminum packaging: Dragged down by first-quarter results, the revenue of the two 2020H1 cans/single-piece cans was 1,488 million yuan and 71 million yuan, respectively, down 13.7% and 21.1% from the previous year. Since the second quarter, the epidemic has stabilized, combined policies have stimulated, and the beer market has recovered rapidly. The performance of the company's two cans is expected to grow rapidly. Looking at the medium to long term, the epidemic has accelerated the increase in the canning rate, and the supply and demand pattern of the industry continues to improve. 2) Tinplate packaging: In the first half of the year, downstream industries such as beverages and chemicals were clearly affected by the epidemic. The company made timely adjustments and switched to categories such as disinfectant spray cans, milk powder cans, condiments, etc., to effectively hedge against losses caused by steel drums, three-piece cans, and square round cans. By category, the revenue of steel drums/milk powder cans/aerosol cans/metal lids/three-piece cans/square cans/square cans/coated iron was RMB 4.00/3.33/2.26/2.60/0.61/1.09/148 million yuan respectively. The year-on-year growth rate was -4.0%/+7.4%/+11.3%/+7.4%/-66.8%/-1.8%/+23.3%, respectively. 3) Plastic packaging: The packaging of care and food products has been seriously affected by the epidemic, which has dragged down performance. The company's hand sanitizer, disinfectant and other disinfectant product packaging has performed brilliantly, and sales have soared, offsetting the impact of care and food product packaging. Plastic packaging fell 12.1% year on year in the first half of the year. Profitability side: Raw material prices fall & product structure changes, profitability continues to increase. The gross profit margin and net profit margin of 2020H1 company were 16.31% and 5.41% respectively, up 0.74pct and 0.66pct respectively from the previous year. The increase in profitability was mainly due to the increase in gross margin of the company's various businesses, good management of period expenses, and reduction in income tax rates. By business, the gross margin of the tinplate/aluminum/plastic packaging business of 2020H1 company was 16.2%/16.8%/13.8%, respectively, and the year-on-year increase was 1.0pct/0.1pct/3.2pct respectively. The gross margin of the main business increased year-on-year, mainly: 1) changes in product structure, stable unit sales price of main business products; 2) falling prices of major raw materials, favorable cost side. In terms of period expenses, the period expense ratio of 2020H1 company was 10.26%, a slight increase of 0.31 pct over the previous year. Expense control was good. Among them, the sales expense rate/management expense rate/financial expense ratio were 4.20%/4.58%/1.48%, respectively, and the year-on-year changes were +0.12pct/+0.45pct/-0.26pct, respectively. In terms of income tax rates, the actual income tax rate for 2020H1 companies was about 20.5%, a year-on-year decrease of 3.3 pct, mainly due to tax rebates for R&D projects and unequal tax rate structures. The Gadobo dispute progressed smoothly, and dividends were declared to have increased significantly. The dispute between the company and Gadobo is progressing smoothly. In November 2019, the company received a ruling from the Hong Kong International Arbitration Center in full support of the company's related claims, and at the end of 2019, it received 250 million yuan in goodwill from Gadobo. In April of this year, Gadobo signed a share repurchase agreement with the company for Qingyuan Gadobo based on special financial support from the syndicate. Gadobo will use RMB 1,555 billion to buy back the 30.58% shares of Qingyuan Gadobo, and Qingyuan Gadobo will pay a promised dividend of 238 million yuan to COFCO Packaging; at the end of June, COFCO Packaging Investment has received the first phase of the repurchase price of 500 million yuan, and has already received the first promised dividend of RMB 0.2 billion before the special shareholders' meeting. It is anticipated that the remaining balance will be recovered in due course as negotiated. Second, the company declared an interim dividend of 9.1 HK cents per share according to a 50% dividend, and considering the settlement of the dispute between the company and Gadobo, the cash flow increased dramatically, and declared a special dividend of 5.3 HK cents per share. It plans to pay a total dividend of 14.4 HK cents per share, an increase of 80% over the same period last year. The competitive pattern in the two-piece tank industry continues to improve, and the epidemic has accelerated the concentration of market share on leading companies such as companies. Supply and demand in the two-piece tank industry tend to balance, and the competitive pattern of the industry continues to improve. Benefiting from the increase in the beer canning rate, we estimate that demand in the two-piece canning industry has increased from about 40 billion cans in 2017 to about 47 billion cans in 2019, and that the current epidemic, home consumption, online shopping, etc. have contributed to an increase in the beer canning rate. Demand in the two-piece canning industry is expected to increase. On the supply side, the production capacity of the two-piece tank industry has basically remained around 58 billion cans, and the industry's capacity utilization rate has increased from about 70% in 2017 to about 81% in 2019. Under the current epidemic, the operating pressure on small and medium-sized enterprises has increased, while leading enterprises such as COFCO Packaging have quickly resumed work and resumed production within the industry to ensure stable supply, and on the basis of rich multi-tank types and development of special-shaped tanks, the market share has been further expanded. Second, the company's Fujian second-line canning project was put into operation at the end of '19. The Belgian project gradually stabilized with the overseas epidemic. Production is now in operation. Increased production capacity has further enhanced the company's position in the industry and enhanced its performance. The investment proposal does not consider Gadobo's compensation for the time being and maintains the previous profit forecast. It is estimated that the net profit of COFCO in 2020-2022 will be RMB 3.32, 3.76, and 425 million yuan respectively. Based on the median price of HKD to RMB 0.89385 on August 20, the corresponding PE will be 10 times, 9 times, and 8 times, respectively, maintaining the “buy” rating. The risk indicates that the price of raw materials will rise sharply; the beer canning rate has not increased as much as expected; and customer expansion has fallen short of expectations.