Incident: In the first half of 2020, the company achieved operating income of 1,141 billion yuan, a year-on-year increase of 7.96%, net profit to mother of 176 million yuan, a year-on-year decrease of 8.93%, and net profit after deducting non-return to mother of 157 million yuan, a decrease of 9.82% year-on-year. The operating rate of the new production line has increased, and various advantages have been exploited, and the flexibility of performance recovery has been fully released. With the gradual lifting of the epidemic's obstacles to domestic resumption of work and production and material transportation, the increasing demand for smartphones driven by 5G was gradually released. Under abundant orders, the full commissioning of the second phase project was fully reflected in the driving effect of the company's performance growth, and the company's advantages in manufacturing process capacity, quality control and customer resources were also well exploited. With 2020Q2, the company achieved revenue of 735 million yuan in a single quarter, an increase of 19.17% over the previous year, achieving net profit of 155 million yuan, an increase of 39.47% over the previous year. 32.47%, up 2.35pct from the same period last year. The penetration of 5G smartphones into the middle and low end is expected to exceed expectations, and the company is determined to increase the code to usher in the strongest trend. Looking at the price situation of 5G models released by major domestic smartphone brands in the first half of this year, as well as the penetration rate of 5G smartphones in China, etc., by reducing the overall price of 5G phones and thereby seizing the opportunity in the competition, it will be the focus of Android brand manufacturers in the second half of the year. Apple will release the 5G version of the iPhone 12 in the second half of the year. For domestic brand manufacturers, it is clearly not a good strategy to fight against Apple in the high-end phone field. Seizing the middle- and low-end mobile phone market earlier is a more appropriate strategy. Based on the above reasons, the progress of domestic 5G smartphones penetrating into the middle and low end markets is expected to exceed market expectations. However, the mid-range mobile phone market is a market that Guanghong has been working intensively for the past few years. The company is also raising capital for the “Guanghong Technology Phase III Intelligent Production and Construction Project” through fixed increases. The expanded production capacity of this project will mainly be used to match the production needs of 5G smart terminals and communication equipment. It is worth noting that the SMT process in 5G smartphones is not without technical upgrades. Judging from industry chain research, in order to meet performance requirements, 5G phones are expected to use more smaller components in the future, which will place higher demands on the equipment accuracy and manufacturing capacity of EMS companies. The company has introduced high-precision POP technology to achieve accurate stacking on small-sized PCBs. The next three phases of the project are likely to be further upgraded on production line equipment and process levels. 5G smartphones penetrated the middle and low end, high-quality customer base, and potential product expansion opportunities. The company's performance in the second half of the year exceeded expectations. Recently, the company's core domestic customers have had a negative impact on the overall industry chain preparation expectations due to restrictions and strengthening by the US government. The final attitude of China and the US and the impact on smartphone shipments of major domestic customers in the second half of the year cannot be accurately determined. However, at the company level alone, the following factors are expected to help the company deliver performance exceeding expectations in the second half of the year: (1) Domestic 5G smartphones accelerate penetration into the middle and lower end markets; (2) The company has a high-quality customer base, including core brand manufacturers such as Xiaomi and OPPO, as well as first-tier companies such as Wentai and Huaqin ODM companies, if the share of H customers in the domestic middle- and low-end market fluctuates, the above customer orders are expected to complement the company to a certain extent; (3) The company is the main manufacturer in the domestic EMS field, and is mainly responsible for the placement of electronic components and chips in the electronics industry chain. The SMT process is not only used in smartphones; downstream applications of the company's past products also include tablets, switches, etc. In recent years, they have also begun to introduce and achieve mass production in wearable fields such as smartwatches. The company is actively developing products such as laptops and televisions. Expectations for potential category expansion. Profit prediction and rating: First coverage, rating for increasing holdings. Since listing, the company's production capacity has been expanded in an orderly manner, providing sufficient impetus for steady performance growth. The construction and commissioning of the third phase project will support the continued growth of future performance. We expect the company's net profit for 2020-2022 to be 470 million, 667 million yuan, and 837 million yuan respectively. The current stock price corresponds to PE 31.47, 22.15, and 17.66 times, respectively. Considering that the company's performance in the second half of the year has the potential to exceed expectations, coverage for the first time gives the company an increase in holdings rating. Risk warning: (1) Smartphone shipments from major domestic customers have declined sharply due to the deterioration of Sino-US relations; (2) the penetration of 5G smartphones into the middle and low end fell short of expectations; (3) the company's fixed increase project construction and subsequent climbing progress fell short of expectations.