Event: On August 26, 2020, the company disclosed the 2020 semi-annual report, achieving operating income of 695 million yuan, an increase of 5.54%; net profit attributable to shareholders of listed companies of 160 million yuan, an increase of 12.28% over the previous year; and net profit attributable to shareholders of listed companies deducting non-recurring profit and loss of 147 million yuan, an increase of 7.64% over the previous year. Performance grew steadily in the first half of the year, and the three business segments progressed collaboratively. In the first half of 2020, the company achieved revenue of 695 million yuan, an increase of 5.54% over the previous year. During the reporting period, the company's various projects in the power sector, military sector, and railway and rail transit sector progressed steadily; the 100MW wind power project built by Sun Company's Zhongning County Yinbian New Energy Co., Ltd. passed 240 inspections and was officially put into commercial operation. Among them, the scale of sales revenue in the railway and rail transit and new energy sectors expanded rapidly, with an increase of 29.05% compared to the same period last year (combined caliber of railway rail transit and new energy). The financial cost of issuing convertible bonds has increased, and capacity building continues to advance. During the reporting period, the company's period rate was 22.76%, up 3.17 percentage points year on year. Among them, sales expenses fell 26.61% year on year due to reclassification of sale-related freight costs to operating costs; financial expenses increased 268.86% year over year due to the company's issuance of convertible bonds; management expenses increased 12.77% year over year, and R&D investment decreased slightly by 3.90%. Among asset changes, fixed assets increased sharply by 228.90% year on year. The increase was mainly the fixed assets of the Zhongning New Energy Wind Power Project; long-term loans increased 338.03% year on year, mainly due to the addition of new financial lease loans for Zhongning New Energy. In addition, projects such as the subsidiary Zhejiang Hanpu's new plant project, the renovation of the Xingbo Communications Test Building, and the renovation of the Yinchuan Wolong Test Station have been invested one after another. The number of projects under construction increased by 46.613 million yuan over the beginning of the year. Starwave Communications has sufficient orders on hand, and its profitability has increased dramatically. The company completed the acquisition of the remaining shares in Starwave Communications during the reporting period. In the first half of 2020, the subsidiary Starwave Communications achieved a net profit increase of 39.60% year-on-year, and the military sector achieved a gross profit margin of 77.9%, a sharp increase of 11.32 percentage points over the previous year. In addition, in July 2020, Starwave Communications signed two contracts with a total amount of 500 million yuan, accounting for 37.81% of the company's total revenue in 2019. Contract delivery will begin in December 2020, mainly in 2021, and is expected to have a significant positive impact on the 2021 performance industry. Military electronics have benefited from the modernization of national defense, and the power and rail transit industries have maintained prosperity. Starwave Communications specializes in the development of military RF/microwave devices, components, subsystems, and hybrid integrated circuit modules. As national defense informatization construction and military practical exercises increase, demand for related microwave hybrid integrated circuit products will increase. The company is a leader in the power monitoring and testing industry. Its subsidiary, Yinchuan Wolong, is the leading railway traction transformer. Since 2020, the State Grid's “Key Tasks” and “New Infrastructure” have focused on deploying UHV. The remaining routes are expected to be quickly approved for construction in 2020; “new infrastructure” investment fields such as intercity high-speed railways and urban rail transit have become one of the main means to drive the domestic economy, and is expected to maintain a high level of investment over the long term. Currently, the company's rapidly advancing new energy industry is also an important trend in future industrial development. Strengthening the horizontal expansion and in-depth layout of the military electronics industry chain has become the company's long-term development strategy. Following the acquisition of Starwave Communications and Chengdu Dingyi, the company announced on August 13, 2020, that it intends to acquire 100% of Zhiliang Electronics's shares by issuing shares and paying cash. The transaction consideration is $860 million. The total amount of capital to be raised is $550 million, of which $301 million will be used to pay consideration, and the rest will be used to supplement working capital. Zhiliang Electronics deducted non-net profit of $40 million in 2019. The acquisition results promise to achieve $0.48/ 0.57/ 669 million yuan in net profit from 2020 to 2022, respectively. Shanghai Zhiliang Electronics focuses on the development and production of products related to radar and electronic warfare. It has multiple product lines for military electronic warfare, electronic reconnaissance, electronic defense, and radar simulation. It belongs to the same industry chain as Starwave Communications, and is expected to create industrial synergy and strengthen the layout of the military electronics industry chain. Profit forecast and investment recommendations: We predict that the company will achieve operating income of 16.23/21.66/ 2,504 billion yuan in 2020-2022, an increase of 21.09%/33.45%/15.58%; achieve net profit of 3.50/4.92/590 billion yuan, a year-on-year increase of 49.10%/40.72%/19.87%; corresponding EPS of 0.96/1.35/ 1.62 yuan; PE 31/22/ 18 times, respectively. Maintain a “buy” rating. Risk warning: There is a risk that future investment in the electricity, military, railway and rail transit industries may fall short of expectations; there is a risk that end-of-period inventory will not be able to carry forward sales revenue in a timely manner due to increased preparation production; and there is a risk that Zhiliang Electronics's acquisition falls short of expectations.