The company disclosed its 2020 interim report on August 27. In the first half of 2020, the company achieved revenue of 695 million yuan (+5.54%), net profit of 160 million yuan (+12.28%), and basic earnings per share of 0.446 yuan (+11.67%). Various businesses progressed steadily, and revenue increased slightly by 5.54% in the first half of the year. By business sector, the power sector, the railway and rail transit and new energy sector, and the military industry sector achieved revenue of 283 million yuan, 405 million yuan, and 0.4 billion yuan respectively. (1) The power sector achieved revenue of 283 million yuan (+4.93%), accounting for 38.85% of revenue, and gross margin of 48.22% (-3.19pct). The company's main business in the power field includes power condition testing, monitoring products, intelligent distribution networks and other power equipment, etc., covering all aspects of power generation, transmission, transformation, distribution, and electricity consumption in the power field. The products include power detection sensors, handheld terminal equipment, portable terminal equipment, online installation testing equipment, power analysis software, and big data cloud platforms and other software and hardware. Since this year, the State Grid's “Key Tasks” and the Politburo Standing Committee's “New Infrastructure” have successively focused on deploying ultra-high voltage. The prosperity of the power transmission and transformation industry is expected to improve. Benefiting from changes in power equipment maintenance models, an increase in the share of investment in distribution grid construction, and the advancement of intelligent power grid systems, the company's electricity sensing, testing and monitoring business will continue to grow steadily. (2) The railway, rail transit and new energy sector (calculated according to the 2019 caliber) achieved revenue of 405 million yuan (+29.05%), accounting for 55.67% of revenue, and gross margin of 42.61% (+8.01pct). The subsidiary Yinchuan Wolong is responsible for the production and sale of transformers, power engineering and services. It is one of the top three suppliers of traction transformers in China. Railway traction transformers cover all voltage levels from 27.5 kV to 330 kV on China's electrified railways. According to the content of the national “13th Five-Year Plan for Railways”, the national railway double line rate and electrification rate will continue to increase in the future. In the context of “new infrastructure,” investment and construction of intercity high-speed railways and urban rail transit will increase, and demand for traction transformers is expected to continue to rise. The company issued convertible corporate bonds in the first quarter, and part of the capital raised was used for the “Energy-saving Traction Transformer Industrialization Project”. The project was implemented by Wolong, Yinchuan, with a total investment of 175.10 million yuan. After delivery, the project is expected to produce 100 energy-saving traction transformers per year, annual sales revenue of 173 million yuan, and net profit after tax of 29.869 million yuan. (3) The military sector achieved revenue of 0.4 billion yuan (-15.71%), accounting for 5.48% of revenue, and gross margin of 77.47% (+15.74pct). The subsidiary Starwave Communications is dedicated to the application of microwave hybrid integrated circuit related technology on airborne, missile-borne, shipborne and other weapon platforms. The products mainly provide support for radar, communication, and electronic warfare systems. It has developed and produced more than 400 microwave component products and more than 20 types of microwave subsystem products for many research institutes and enterprises such as aerospace, aviation, weapons, electronics, and ships. The frequency range has completely covered 8 mm. It is one of the few private enterprises in China that have microwave subsystem development and production capabilities to various missile-borne weapon platforms. Starwave Communications has signed contracts with special agency customers on July 22 and July 27. The order amounts are 290 million yuan and 210 million yuan respectively. Products will be delivered one after another starting at the end of this year, and the company's military sector performance is expected to grow rapidly next year. The subsidiary Dingyi Information is mainly engaged in R&D, production and sales of infrared thermal imaging systems. Its products are widely used in civil and military fields such as temperature measurement, security monitoring, investigation, and guidance. In the military field, it has successfully developed infrared guide heads, laser guide heads, and infrared movement components for targeting. In the future, as the digitalization, informatization, and modernization of national defense continues to accelerate, and investment in national defense continues to increase, microwave hybrid integrated circuit products, as an important industry for raising the level of informatization of weapons and equipment, will continue to grow. Continue to expand the military industry in depth. On August 14, the company issued a draft asset purchase transaction for shares. It will purchase 100% of Zhiliang Electronics's shares at a price of 860 million yuan. Zhiliang Electronics specializes in the development, production and related technical services of electronic reconnaissance, electromagnetic protection, radar anti-interference, and simulation training products in the field of military radar electronic warfare. The products are used in various weapon platforms such as aircrafts, missiles, ships, ships, aviation, aerospace, electronics, etc., and local military enterprises and military related units. Zhiliang Electronics achieved operating income of 87.8159 million yuan and net profit after deduction of 42.2317 million yuan in 2019. In January-May this year, it achieved operating income of 36.5576 million yuan, and net profit after deduction of 20.9361 million yuan. According to the performance commitment, Zhiliang Electronics' net profit after deduction from 2020 to 2022 was 47.8 million yuan, 57.36 million yuan, and 68.83 million yuan respectively, with annual growth rates of 18.80%, 20%, and 20%, respectively. Zhiliang Electronics and Starwave Communications products, a subsidiary of Zhiliang Electronics, can be used in radar and electronic warfare fields, and there are upstream and downstream dependencies in the industrial chain. With the completion of the acquisition of Zhiliang Electronics, it will develop collaboratively with Starwave Communications. The company's military business industry chain will expand, and the share of military business revenue is expected to increase. Investment advice. The company makes full use of its deep accumulation and rich business experience in the power grid market to actively expand its business layout in the fields of power generation, railway and rail transit, military industry, etc., and the company's revenue is expected to increase further. We slightly adjusted the company's operating income in 2020-2022 to 1,529 billion yuan, 1,763 million yuan and 1,983 million yuan, with growth rates of 14.05%, 15.33%, and 12.48% respectively, and net profit of net income slightly adjusted to 276 million yuan, 329 million yuan and 369 million yuan, respectively. The growth rates were 17.39%, 19.43%, and 12%, respectively, regardless of changes in equity brought about by the company's issuance of convertible bonds and issuance of shares to purchase assets, EPS was 0.77 yuan, 0.92 yuan and 1.03 yuan, corresponding to PE 39 Double, 33 times, and 29 times, the company was given a “holding” rating. Risk warning: Demand for power equipment fell short of expectations; orders for military products fell short of expectations.