The 1H20 performance fell short of our expectations. The company announced 1H20 results: operating income of 858 million yuan, down 54.0% year on year; net profit of the net profit of the mother - 246 million yuan, down 297.8% year on year; net profit after deduction of 253 million yuan, down 247.5% year on year, lower than our expectations, mainly due to the impact of the epidemic dragging down the company's home improvement project construction progress. On a quarterly basis, Q1/Q2 revenue was down 75.7%/37.8% year on year, and net profit was down 192.7%/170.6% year on year. Development trend 1. The epidemic clearly dragged down the company's business performance in the first half of the year. In the first half of the year, the company's revenue fell 54% year on year, mainly due to delays in construction progress on project sites due to the impact of the epidemic. By business, home improvement/precision tooling/public equipment revenue fell 57.9%/49.6%/20.1% year on year, respectively. The company actively responded to the impact of the epidemic and promoted digital empowerment and refined management. In the first half of the year, the company successfully launched an intelligent operation management system for the entire home improvement chain to achieve digital delivery of the entire process, including contract signing, construction, and after-sales. At present, the on-time delivery rate of the company's personalized home improvement business has reached 93%, and customer satisfaction has reached 96.4%. 2. Profitability is declining. The gross margin of 1H20 companies fell 2.5ppt to 30.9% year on year, mainly dragged down by the decline in the profitability level of the engineering business, which accounted for a relatively high level. The cost rate increased by 26ppt during the period. We expect that this is mainly due to some rigid costs. Furthermore, the company maintained investment in R&D, and the salary of R&D personnel increased by 10.48 million yuan year-on-year in the first half of the year. Under the combined influence, the company lost 246 million yuan in 1H20. 3. Follow up on marketing product innovation and the effectiveness of cooperation with Xiaomi. Facing the current situation of fragmentation of passenger flow in the industry, the company actively seeks change through endogenous epitaxial extension: ① The marketing side, vigorously expands online channels, accelerates the development and launch of official apps, applets, etc., and adds platforms such as Xiaohongshu and Douyin. In the first half of the year, it launched more than 500 live home improvement broadcasts, and achieved more than 7,000 orders to seize industry traffic; ② On the product side, on the one hand, create regionalized products for different regional characteristics, and on the other hand, develop products such as integration, renewal, and co-branding of designers that meet market needs; ③ On the operation side, increase digital empowerment and improve service delivery and management efficiency, after following Continue business progress. The company announced in July this year that it plans to introduce Xiaomi technology as a strategic investor. While supplementing cash flow, the two sides will strengthen cooperation in the fields of mutual sales of products and internet advertising. Relying on Xiaomi's layout in the field of intelligent IoT, combined with the company's deep accumulation and digital capabilities in the home improvement field, the two sides will explore the integration of AIoT IoT technology and smart home lifestyle. Profit forecasts and valuations are based on the impact of the pandemic on the company's engineering construction this year. We lowered our earnings per share forecast for 2020 by 82.8% to 0.09 yuan, keeping the 2021 profit forecast unchanged. The current stock price corresponds to a price-earnings ratio of 14.8 times in 2021. It has maintained an outperforming industry rating, but based on the company's introduction of Xiaomi technology as a strategic investor, we expect the company to usher in broad space in digital transformation and smart homes in the future. We raised our target price of 15.0% to 9.43 yuan, corresponding to 15.7 times the 2021 price-earnings ratio, which is 6.2% higher than the current stock price. Prices of risky raw materials have fluctuated greatly, and real estate regulation has exceeded expectations.