Event: Xuerong Biotech's 2020 H1 revenue was 996 million yuan (+13%), and net profit was 155 million yuan (+35%), in line with our previous forecast. The competitive pattern has improved, the price of enoki mushrooms has risen centrally, and the company has made a lot of profit. After a sharp expansion of production in the enoki mushroom industry in 16-18, prices fell rapidly, leading to serious losses during the off-season. Currently, the industry concentration is high. CR5 has a market share of 50-60%, and CR10 has reached 70%. As a result, the industry formed associations to control production. Fluctuations in enoki mushroom prices have declined markedly in the past two years, and the company's performance has continued to be unleashed. In Q2 2020, the company produced about 77,000 tons of enoki mushrooms, with an average price of 4.5 yuan/kg and a full cost of 4.44 yuan/kg. The enoki mushroom suffered a slight loss. Pleurotus eryngii has a break-even balance. True shiitake mushrooms were affected by exports, with a loss of 12 million in Q2. The effects of deepening channel cultivation are evident, and the To C side continues to gain strength. In recent years, through deep direct sales, multiple varieties, multiple channels, and direct access (city and county markets), the company has increased the development of supermarkets and online channels, and increased the delivery rate of small packaging products on the TOC side. The proportion of small packages was 12% in '18, and 20-25% in '19. Due to this year's epidemic, the effects of early intensive cultivation have been shown. Combined with various online fancy marketing, the company's brand strength has increased significantly. Small packaging products began to explode this year, reaching 35-40%. The multi-product strategy continues to advance, and the rapid growth in production capacity strengthens the leading position. The company continues to promote a variety of strategies, and production capacity is growing rapidly. The current production capacity of edible fungi is 1,200 tons per day, including 960 tons of enoki mushrooms, 120 tons of eryngii mushrooms, and 120 tons of true shiitake mushrooms, ranking first in the country. Next year, it is expected that the production capacity of enoki mushrooms will increase by more than 100 tons, and eryngii mushrooms by 160 tons. Next year, production capacity will be increased by about 260 tons, and the total production capacity is expected to reach 1450-1500 tons. The industry is actively expanding, laying out the vast artificial meat market. The company actively seeks opportunities for industrial expansion with strong correlation with the main business and growth value, and explores the deep processing of edible fungi and the multi-level industrial layout in the field of technological food. Currently, the company has invested in Weishida and formed a joint venture with Aiyi Foods to enter the vast artificial meat market and further seize the racetrack opportunities in food technology and health consumption. Investment advice: The company is a leader in the enoki mushroom industry, actively deploying other mushroom varieties, and production capacity is growing rapidly. At the same time, the industry is expanding into the artificial meat market, and we are firmly optimistic about the company's future development prospects. We adjusted the company's net profit for 2020-2022 to 3.1 million, 3.7, and 4.1 billion respectively. Based on the closing price on 2020-8-26, the corresponding PE was 26.2/22.2/19.8 times, respectively, maintaining the “buy” rating. Risk warning: prices fall short of expectations; slow release of production capacity; rising costs.