The results of the interim report were in line with expectations: net profit for the first half of the year increased by 12%, and net operating cash flow improved dramatically. In the first half of 2020, the company achieved operating income of 695 million yuan, an increase of 5.54%; net profit from net income of 160 million yuan, an increase of 12.28% over the previous year; net profit after deducting non-return net profit was 147 million yuan, up 7.64% year on year. The performance is close to the lower limit previously forecast. Q2 achieved operating cash flow of 120 million dollars, and the cash flow situation improved markedly. Business differentiation in the first half of the year: the power business exceeded expectations, and the rail transit business fell short of expectations. In the first half of 2020, the company's power testing and power equipment products achieved revenue of 474 million yuan, an increase of 21% over the previous year, with good performance; railway and rail transit traction power supply equipment achieved revenue of 111 million yuan, a year-on-year decline of 47%, falling 47% year-on-year, falling short of expectations; electricity sales revenue was 62 million yuan, exceeding 24 million yuan for the whole year of last year. The 100MW wind power project built by the company's Zhongning County Yinbian New Energy Co., Ltd. passed inspection and was officially put into commercial operation during the reporting period; military electronics The business achieved revenue of 40 million yuan, down 11% from the previous year. The main reason was that production and logistics were greatly affected by some orders from the subsidiary Starwave Communications due to epidemic prevention factors. As the epidemic is effectively controlled in the second half of the year, military electronics business revenue is expected to grow again. The gross margin for the first half of the year increased 5% year on year. The increase in the period expense ratio was due to the increase in the financial expense ratio. The company's comprehensive gross margin for the first half of the year was 48.89%, an increase of 4.75 pct over the previous year. Among them, the consolidated gross margin for the second quarter in a single quarter was 45.50%, up 0.83 pct year on year and down 7.51 pct month on month. The company's period fee rate for the second quarter of 2020 was 24%, an increase of 5 pct over the previous year and 3 pct over the previous month. Looking at the split, the Q2 sales expense ratio, management expense ratio, and R&D expense ratio are expected to be 6%, 6%, 4%, and 8%, respectively, with year-on-year increases of -1pct, 1pct, -1pct, and 6pct, respectively. With the exception of the financial expense rate, the cost rate for the other three periods remained basically stable. The increase in financial expenses was mainly due to the completion of the external issuance of convertible bonds in March this year. Endogeny+epitaxial two-wheel drive development, Zhiliang Electronics' acquisition and supporting capital raising projects are steadily advancing. The company has always adhered to the two-wheel drive strategy of connotative and epitaxial development. It has now formed a good situation of collaborative development of the three businesses of electricity, rail transit, and military electronics. Zhiliang Electronics is a leader in the radar electronics industry against private enterprises, and is highly scarce. Performance commitment: The net profit after deducting expenses in 2020-2022 is not less than 4780, 5736, and 68.83 million yuan, with annual growth rates of 18.8%, 20%, and 20%, respectively. Profit forecasts and valuations are optimistic about the development prospects of the military electronics business during the “14th Five-Year Plan” period; after the completion of the integration, the business is expected to account for 44% of revenue in 2021. The company's net profit for 2020-2022 is estimated to be 3.1/5.4/650 million yuan, with a year-on-year growth rate of 32%/75%/19%, respectively, and corresponding PE of 40/23/19 times. Maintain a “buy” rating. Risks suggest that the scale of railway or power grid investment falls short of expectations; Zhiliang Electronics mergers and acquisitions have failed; military order delivery progress is lower than expected; major shareholders' equity pledge risk; and the risk that restricted shares will be lifted.