Net profit from 20H1 fell 18% year on year, with some resilience. 20H1. The company achieved revenue of 145 billion yuan (yoy +6%), net profit of 820 million yuan (yoy -18%); 20Q2, revenue of 8.3 billion yuan (yoy +16%, qoq +32%), and net profit of 450 million yuan (yoy -25%, qoq +22%). The profit performance of 20H1 was resilient, and the gross margin of steel products fell only 0.4 pct year over year. Considering that downstream demand performance such as real estate and infrastructure is still optimistic, we raised the company's profit forecast. The company's EPS is expected to be 0.74/0.85/0.98 yuan in 20-22, maintaining the “gain” rating. Regional steel has a premium and toughness. The gross margin of 20H1 declined less year-on-year in 20H1. The company produced 326, 390, and 3.7 million tons of iron, steel, and materials (yoy +2%, +7%, +9%), respectively. The gross profit margin of the company's steel products is 12.3% (yoy -0.4%). By type, plate and special steel performed well, gross margin increased year-on-year (yoy+0.8pct, +6.2pct), and the gross margin of long steel declined year-on-year. The company's profit performance is relatively good, or mainly due to the premium and toughness of steel in Guangdong. According to Wind, the average thread prices in Guangzhou and the country were 3896 and 3,720 yuan/ton (yoy-318 and 354 yuan/ton) respectively, and the average prices for medium plates were 3878 and 3,752 yuan/ton (yoy-244 and -259 yuan/ton), respectively. 20H1's cumulative cost reduction and efficiency increased by 500 million yuan 20H1. The company's sales, management, finance, and R&D expenses changed +19%, +89%, -38%, and +23% year-on-year. Among them, the higher year-on-year increase in management expenses was mainly due to the increase in employee remuneration, and the higher year-on-year decline in financial expenses was mainly due to reduced interest expenses and reduced exchange losses; the period expense ratio was 3.7% (yoy+0.5pct), and the net profit margin on sales was 5.7% (yoy-1.6pct). During this period, the company actively reduced costs and increased efficiency, achieving a total of 500 million yuan, including 94 million yuan in ironmaking and 186 million yuan in steelmaking. In addition, 50% of the shares in the subsidiary Baote Shaoguan have been transferred to JFE Steel, and it is expected that the quality and added value of special steel products will be further improved through cooperation in the future. Real estate performance is weak. Infrastructure is expected to remain optimistic. According to the National Bureau of Statistics, investment in real estate, infrastructure, and manufacturing in July 2020 was 11.7%, 7.9%, and -3.1%, respectively, year-on-year, respectively, and the manufacturing industry is still being disposed of. According to Huatai's “Economic Recovery Continues, Financial Margins Slowdown” (2020.8.25), in real estate, despite marginal tightening of financing policies, short-term real estate investment growth may still be high and resilient; in terms of infrastructure, the growth rate of infrastructure investment is still optimistic in the later stages due to sufficient financial “ammunition”, the effects of floods subside, and demand to protect employment. Furthermore, the company is located in Guangdong, and steel premiums and resilience will further guarantee the company's profitability. It is expected that there will be synergy effects on the procurement side. Maintaining the “increase in holdings” rating companies belong to China's Baowu system. Currently, China Baowu is moving into the main Chongqing Steel and TISCO Group. Future purchasing-side synergy effects may be further demonstrated, providing space for the company to reduce costs and increase efficiency. Considering that downstream demand performance such as real estate and infrastructure is still optimistic, we raised the company's profit forecast. The company's EPS for 20-22 is estimated to be 0.74/0.85/0.98 yuan (previous value 0.70/0.81/0.98 yuan). Comparatively, the average value of the company's PB (2020E, Wind's unanimous expectation) was 1.06 times. Considering that the company's raw material procurement advantage is expected to increase, the company was given a 1.2 times PB (2020E) valuation, taking BPS (2020E) at 3.90 yuan, and the corresponding target price was 4.68 yuan (previous value of 5.40 to 5.59 yuan), maintaining the “gain” rating. Risk warning: Downstream demand falls short of expectations; the development of the epidemic has exceeded expectations.