1H20 revenue was -9.1% year-on-year, and net profit to mother was -5.3%. The pandemic affected 1H20 cement volume and price performance. The epidemic compounded delays in the commencement of major projects, resulting in poor performance in the core profit region of Shaanxi, and the performance was slightly lower than expected. The decline in coal prices led to an improvement in the cost per ton, but the reduction in cost was less than the price drop, and gross profit per ton declined somewhat. Expense control was good overall, financial expenses achieved net revenue, and operating cash flow declined year-on-year. After the rain disturbance is over, it is expected that prices will be repaired relatively quickly, and the domestic and overseas cement layout will be steadily promoted. The 2020 net profit forecast was slightly lowered to $1.97 billion (the original forecast was $2.11 billion), maintaining the company's net profit forecast of $2,40/2.58 billion for 2021-2022, corresponding EPS of $0.36/0.44/0.47, and maintaining the target price of HK$2.20 and the “buy” rating. 1H20 revenue was -9.1% year-on-year, and net profit to mother was -5.3% year-on-year. The pandemic affected cement volume and price performance. The performance was slightly lower than expected, and the dividend frequency was changed from once every six months to once a year. The company's 1H20 revenue was 3.01 billion yuan, -9.1% year on year; gross profit of 1.05 billion yuan, -7.4% year on year; net profit to mother was 750 million yuan, -5.3% year on year. Demand in the region was affected by the pandemic, leading to a year-on-year decline in cement volume and price, and 1H20's performance was slightly lower than expected. By product, 1H20 cement/aggregate/commercial concrete's revenue was 2,60/ 0.5/290 million yuan (YoY -10.2%/+36.8%/+47.8%) and gross profit of 9.1/0.2/60 billion yuan (-14.2%/-3.1%/+50.2% YoY). The company did not propose dividends in the medium term (dividend of 0.036 yuan/share for the same period last year). We think it is only a change in the frequency of dividends. It is expected that the dividend ratio of 30% will still be maintained throughout 2020. The volume and price of 1H20 cement have plummeted, and the epidemic combined with delays in the commencement of major projects has led to poor performance in the core profit region of Shaanxi. 1) In terms of sales volume, 1H20 sold 8.24 million tons/1.35 million tons/590,000 square meters of cement/aggregate/commercial concrete, -2.5%/+22.7%/+78.8% year-on-year. Cement sales declined in the first half of the year due to the impact of the epidemic; benefiting from the gradual development of production capacity, aggregate and commercial concrete sales continued to grow. In terms of price, the price of 1H20 cement ton was 315 yuan (-27 yuan/ -7.9% year on year), the price of a ton of aggregate was 39 yuan (+4 yuan/ +11.4% year on year), and commercial concrete sold for 486 yuan (-102 yuan/ -17.3% year on year). The price of cement was lowered due to the disturbances of the epidemic. 2) Looking at the subregions, 1H20 Guanzhong/Shaannan/Xinjiang/Guizhou cement sales were 348/321/95/600,000 tons, +9.8%/-18.9%/+23.4/ +9.1% year-on-year; the tonnage prices in each region were 316/302/395/249 yuan, respectively, -4.0%/-11.4%/-12.8%/-8.1%. With the exception of southern Shaanxi, sales volume increased year on year, while sales prices in all regions fell year on year; despite the company's dominant market position in the traditional core profit region of Shaanxi, the volume price of 1H20 in Shaanxi fell year on year due to the impact of the epidemic, gradual completion of projects under construction, and delays in the commencement of major projects. The decline in coal prices led to an improvement in the cost per ton, but the reduction in cost was less than the price drop, and gross profit per ton declined. In terms of cost, the cost of 1H20 cement ton was 205 yuan (-12 yuan/ -5.5%), of which raw materials/coal/electricity/depreciation/labor/other costs were 61.4/50.4/30.5/33.0/13.9/15.6 yuan, -8.4%/-32.2%/-23.2%/-6.7%/-28.0%/-29.8% year-on-year, the main reason for the decline in the cost of a ton; reflected in gross profit, 1H20 cement ton was 110 yuan (-15 yuan/ -12.0% year on year), with some year-on-year costs decline. Expense control was good overall, financial expenses achieved net revenue, and operating cash flow declined year-on-year. The company's 1H20 gross profit margin was 34.8%, up 0.7 pcts year-on-year. The cost rate for the 1H20 period was -1.1 pcts to 6.0% year on year. Among them, the sales/management/finance expense ratio was 0.9%/6.1%/-0.9%, +0/+0.3/-1.4 pcts year over year. The overall cost control was good. The year-on-year decline in financial expenses was mainly due to higher interest payments on senior notes in the same period last year. In terms of cash flow, net operating cash inflow of 760 million yuan (-49.3% year-on-year) was mainly due to the impact of the decline in sales and profits of the main cement business; net cash outflow of 1.26 billion yuan from investment (net outflow of 930 million yuan in the same period last year); and net cash inflow from financing of 870 million yuan (net outflow of 350 million yuan for the same period last year). After the rain disturbance is over, it is expected that prices will be repaired relatively quickly, and the domestic and overseas cement layout will be steadily promoted. Considering that the rain disturbance in the company's core market and surrounding area is coming to an end, demand for related infrastructure is expected to gradually recover, and industry self-regulation in the region will be strengthened. We expect the company's cement sales to rise steadily in the second half of the year; prices are expected to rise restoratively in the short term, and there is a possibility of further increases after entering the peak season. In addition, the company is steadily advancing its domestic and overseas cement layout: the company announced on August 2 the acquisition of 97.5% of Kangding Paomashan Cement shares. The target of the acquisition is one of only two clinker production lines in Ganzi Prefecture, Sichuan. It is expected to benefit from major projects such as the Sichuan-Tibet Railway, which can enhance the company's performance in the short to medium term and benefit from the western development strategy in the new era; the company's new production line in Mozambique is expected to be put into operation within the year, and production costs are highly competitive locally. Risk factors: Major infrastructure projects fall short of expectations; aggregate and commercial concrete production falls short of expectations; rain and weather disturbances, etc. Investment advice: Considering factors such as the pandemic and rain disruptions on the demand side, and delays in the commencement of major infrastructure projects, we lowered the company's net profit forecast for 2020 to 1.97 billion yuan (the original forecast was 2.11 billion yuan). At the same time, considering that major project delays only affected the pace of demand and the contribution of the company's new domestic and foreign production capacity to performance, we maintained the company's 2021-2022 net profit forecast of 24.0/2.58 billion yuan, corresponding EPS of 0.36/0.44/0.47 yuan. The current price is 3.6 x /2.9 x/ 2.7x; Based on the assumption of a dividend rate of 30% in 2020, the current price corresponds to a dividend rate of 8.5%. We maintain a target price of HK$2.20 (corresponding to 1.0 times PB in 2020) and a “buy” rating.