Event: the company released its mid-term report for 2020, with operating income of 8.39 billion yuan in the first half of the year, a slight increase of 0.2% over the same period last year, a gross profit margin of 12.5%, an increase of 0.4% over the same period last year, and a net profit belonging to the parent company of 320 million yuan, an increase of 11.5% over the same period last year. In the second quarter, the company realized operating income of 4.63 billion yuan, an increase of 1.5% over the same period last year, a gross profit margin of 13.6%, an increase of 0.8% over the same period last year, and a net profit of 210 million yuan for shareholders of listed companies, an increase of 11.2% over the same period last year.

Revenue in the second quarter was flat after catching up with the first half of the year, and the performance of the engineering and semiconductor businesses was stable: the company's revenue in the first half was flat compared with the same period last year, and the year-on-year growth in the second quarter was 1.5% to make up for the decline in revenue caused by the epidemic in the first quarter. The epidemic had a great impact on the engineering business in the first half of the year, and the progress of the project came to a standstill, but the total revenue of the project still increased by 0.7% compared with the same period last year, mainly due to the company's key projects trying to minimize the impact of the epidemic and blooming in many fields outside the traditional fields. at present, National Day Science and Technology has entered into the construction of a number of typical projects, including biomedicine, data centers, civil projects and other fields. Semiconductor business revenue grew 1.1% year-on-year, and the company better resisted industry risks in the face of declining terminal demand in the first half of the year, mainly due to the significant increase in Haitai Semiconductor production and the introduction of advanced processes to maintain full-load production. The revenue of photovoltaic power generation performed well in the first half of the year, with an increase of 27.3% over the same period last year, showing growth in the context of the recovery of the industry.

The gross profit margin increased, and the expense rate remained stable during the period: the company's gross profit margin increased by 0.4% and 0.8% respectively in the first half and second quarter compared with the same period last year. The increase in gross profit margin shows the company's better cost control capability in the engineering package and semiconductor closed test business, while the revenue from the design and consulting business with a higher gross margin level declined compared with the same period last year. On the other hand, the growth of photovoltaic power generation business contributed to a part of the gross profit margin improvement. During the first half of the year, the expense rate remained stable, the management expense rate decreased by 0.2% compared with the same period last year, and the financial expense rate increased by 0.1% compared with the same period last year.

Semiconductor business to speed up domestic development, 11 science and technology multi-field development: the company did not disclose the first three quarters of 2020 performance expectations, the whole year, after the recovery of the epidemic, the general engineering contract projects will be accelerated, the growth in the second half of the year will effectively improve, while the semiconductor business sea Pacific will continue to be fully loaded production, Taiji Semiconductor will benefit from the production of new products climbing, the whole year will maintain steady growth. Judging from the business progress of various operating entities, Haitai Semiconductor re-signed a five-year agreement with Hynix this year, and the cooperation model remains unchanged. The production growth brought about by large-scale production and the accelerated introduction of advanced processes ensure the stable performance contribution of Haitai Semiconductor in the future. Taiji semiconductor LPDDR4 has entered mass production, new NAND Flash products have entered the verification stage, and actively explore the domestic market, including cooperation with Changxin and other new growth points in line with the trend of domestic alternative development. The National Day holiday science and technology has transformed from traditional integrated circuit field to multi-field. At present, the project is in full bloom, including biomedical, data center and other strategic areas, providing a driving force for the sustained growth of engineering business.

Investment suggestion: our company forecasts earnings per share of 0.32, 0.38 and 0.42 yuan respectively from 2020 to 2022. The return on equity is 9.2%, 9.7% and 9.7% respectively, maintaining the buy-B recommendation.

Risk hints: the lack of demand in the memory market leads to the decline of closed test orders; the reduction of order size in the construction industry brings the risk of revenue decline; policy changes in the photovoltaic industry bring the risk of insufficient demand; the risk that gross profit margin is greatly affected by cost changes.