Incident Lijun Co., Ltd. released its 2020 interim report. From January to June 2020, it achieved operating income of 276 million yuan, a year-on-year increase of 0.01%; realized operating profit of 82 million yuan, a year-on-year decrease of 11.50%; realized gross profit of 119 million yuan, a year-on-year decrease of 4.80%; and realized net profit attributable to the parent company of 69 million yuan, a year-on-year decrease of 15.23%. Commenting on the impact of the pandemic on the aftermarket of roller presses, the revenue growth of the mine roller mill and aerospace business greatly exceeded expectations, while the gross margin of the roller press aftermarket and aerospace business improved beyond expectations. From January to June 2020, it achieved revenue of 276 million yuan, a year-on-year increase of 0.01%; realized operating profit of 82 million yuan, a year-on-year decrease of 11.50%; realized gross profit of 119 million yuan, a year-on-year decrease of 4.80%; and realized net profit attributable to the parent company of 69 million yuan, a year-on-year decrease of 15.23%. Achieved a comprehensive gross profit margin of 42.92%, down 2.45 percentage points from mid-2019 and 1.36 percentage points from the full year of 2019. In the second quarter of 2020, the company achieved operating income of 150 million yuan, a year-on-year decrease of 43.31%; gross profit of 556 million yuan, an increase of 44.44% over the previous year; and realized net profit attributable to the parent company of 36 million yuan, an increase of 17.31% year-on-year. The company achieved a comprehensive gross profit margin of 43.33%, up 0.48 percentage points year on year compared with the second quarter of 2019, and 0.01 percentage points month on month compared with the first quarter of 2020. By business, during the reporting period, the company's mining high-pressure roller mills and various series of products manufactured with supporting and aerospace components achieved significant year-on-year increases of 394.76% and 70.74%, but overall business revenue remained basically the same year over year, mainly due to a sharp decline in roller systems (subsystems) and other business revenue. The roller system (sub) is the core integrated component of cement roller presses and supporting high-pressure roller mills and ancillary products for mining. It is a customized product developed by the company in response to the needs of downstream customers of the product. Other business is mainly components for roller presses (high pressure roller mills). The main reason for this decline in business was that in the first half of 2020, some downstream customers were affected by the epidemic and delayed the resumption of work and production, and demand declined. The company's consolidated gross margin fell sharply by 2.45 percentage points year on year, mainly due to a sharp decrease in revenue from roller systems (subsystems) with high gross margins affected by the epidemic, a sharp increase in revenue from high-pressure roller mills and ancillary equipment for mining, which has relatively low gross margin, and a decline in the share of overall high gross margin related business revenue. However, in reality, the gross margins of the company's high-margin roller systems (subsystems) and various series of products manufacturing aerospace components were 61.43% and 62.54%, respectively, up 4.90 and 0.93 percentage points from the previous year, while the gross margin of high-pressure roller mills and ancillary products for mining, which increased significantly year-on-year, was about 28.66%. Profit forecast The company's 2020 interim results are slightly lower than our expectations. We have adjusted the profit forecast appropriately based on relevant data. It is estimated that in 2020-2022, the company will achieve operating income of 770, 9.12 and 1,099 million yuan, net profit attributable to the parent company of 1.86, 2.44 and 323 million yuan, and a total share capital of 1,018 million shares, corresponding to EPS of 0.18, 0.24 and 0.32 yuan. On August 30, 2020, the stock price was 9.00 yuan, corresponding to a market value of 9.2 billion yuan. The 2020-2022 PE was about 50, 38, and 28 times. The company's roller press and related equipment business has obvious competitive advantages, benefiting from capacity replacement and equipment transformation and upgrading in the building materials and mining industry. After equipment service, the market has strong profitability and plenty of room for growth. The aerospace parts and tooling design and manufacturing business is the main driving force for future growth, and we maintain the “increase in holdings” rating. Risk warning: New product development and mass production fell short of expectations, and the prosperity of the building materials and mining equipment industry exceeded expectations.