Event: The company released its 2020 semi-annual report. In the first half of 2020, the company achieved total revenue of 996 million yuan, +12.75% year on year; realized net profit of 155 million yuan, +34.51% year over year. The performance was in line with expectations. Comment: The gross margin of enoki mushrooms increased, and overall performance increased. The company specializes in fresh edible fungi. In the first half of the year, enoki mushrooms and shimeji mushrooms achieved revenue of 781 million yuan and 146 million yuan respectively, +9.08% and +32.73% year-on-year, respectively. On a quarterly basis, Q1 and Q2 achieved revenue of 601 million yuan and 395 million yuan respectively, +12.04 and +13.86% year-on-year, respectively. The main reasons for the rapid growth in the first half of the year were: ① Channel expansion, brand packaging improvement, and significant increases in product prices and gross margin. The company's brand packaging ratio has increased dramatically, and sales prices have increased significantly compared to the same period last year. The gross margin of the main product, enoki mushrooms, increased by more than 6% compared to the same period last year. ② The quality of eryngii mushroom products at the Guizhou base has improved markedly, the cost has been drastically reduced, and the gross margin has increased significantly. ③ The company further optimized the bank financing structure and reduced borrowing costs. The company's financial expenses decreased by more than 20% compared to the same period last year. Profitability increased slightly. In the first half of the year, the company achieved a gross profit margin of 23.63%, up 1.98 percentage points from the previous year; achieved a net profit margin of 13.91%, up 1.20 percentage points from the previous year; and realized an expense ratio of 9.67%, a year-on-year decrease of 0.70 percentage points. The increase in profitability is due to an increase in gross margin due to the increase in the price of the main product, enoki mushrooms. Production capacity advantages are obvious, and online and offline sales networks are gradually being improved. By the end of June, the company had a daily production capacity of 1,200 tons of edible fungi, including 960 tons of enoki mushrooms and 240 tons of other mushroom types, ranking first in the country. The company is the first company in the industry to complete a national layout; the enoki mushroom production workshop project at the Xuerong production base in Thailand abroad has now been gradually bottled, and mushrooms are produced in small batches. Currently, relying on a reasonable production capacity layout, the company has laid out five sales regions across the country and established a national sales network covering major populated areas. The company continues to promote a multi-variety strategy, and a new type of mushroom, deer antler, has been mass-produced and sold online. Through intensive cultivation of KA channels, we will vigorously expand online fresh e-commerce channels, combine various types of consumer promotion and accurate marketing, and strengthen deep penetration into the direct market. Through online and offline dual line driving, the company's brand packaging ratio has increased dramatically. Investment advice: The company is a leading enterprise with fresh edible fungi. The production capacity advantage is obvious. New varieties and new packaging products continue to be launched, and the sales network is gradually improved. We expect the company's earnings per share in 2020/2021 to be 0.78/0.95 yuan, respectively. The current stock price is 22.83/18.81 times PE, respectively, giving the company a “recommended” rating for the first time. Risk warning: the price of enoki mushrooms has dropped sharply, online channel sales have declined, new varieties have fallen short of expectations, food safety issues, etc.