On August 28, the company announced its 2020 semi-annual report: the company achieved revenue of 14.550 billion yuan in the first half of 2020, an increase of 5.52% over the previous year; realized net profit of 823 million yuan, a year-on-year decrease of 18.26%. Net profit of 452 million yuan was achieved in the second quarter, an increase of 21.51% over the previous quarter. The company's revenue increased year-on-year, but profit declined due to cost-side squeezing. The company mainly deals in three categories: construction materials, sheets, and premium steel. During the reporting period, the company maintained a high production volume, with 3.26 million tons of communal iron, up 2.4% year on year; produced 3.9 million tons of steel, up 7% year on year; produced 3.75 million tons of steel, up 8.6% year on year. Meanwhile, the average price of 20H1 rebar in Guangzhou was 3,896 yuan/ton, down 7.6% year on year; while the average price of rebar in Guangzhou was 3,720 yuan/ton during the same period, down 8.7% year on year. Compared with the price of rebar, plate price performance was better: the average price of 20mm medium plate in Guangzhou in the first half of the year was 3,878 yuan/ton, a slight decrease of 5.9% year on year. Overall, steel prices in Guangdong fell less than in the country. Combined, the increase in production led to a 5.52% increase in the company's total revenue during the reporting period. However, due to the impact of the epidemic, domestic steel inventories continued to rise, market demand declined rhythmically, logistics and transportation were blocked, and the company's profit was blocked due to lower steel prices. Net profit to mother of 823 million yuan was achieved in the first half of 2020, a decrease of 18.26% over the previous year. However, since the second quarter, as the epidemic gradually subsided and downstream demand gradually recovered, and the company's sale of Baote Shaoguan shares, the company's second-quarter performance improved dramatically: the company achieved a total net profit of 452 million yuan to mother in the second quarter, an increase of 21.51 percent over the previous quarter. Continued improvement in the financial situation and the construction of the Guangdong-Hong Kong-Macao Greater Bay Area will enable the company to benefit for a long time. The company will continue to experience huge losses for 14 or 15 years. The financial situation continues to deteriorate. The balance ratio was as high as 98%, and it was once on the verge of bankruptcy. As of the first half of the year, the company's balance ratio was 50.74%, down 2.32 percentage points from the first quarter. The financial situation was at its best stage in history; undistributed profit was 2.106 billion yuan, an increase of 144 million yuan over the previous month. Since the first quarter of 2019, the company's undistributed profit has continued to grow, and its profitability has increased significantly. The company is located in Shaoguan City, Guangdong Province. Guangdong has always been an area with a net inflow of steel. Benefiting from the construction of the Guangdong-Hong Kong-Macao Greater Bay Area, demand for steel may continue. The company belongs to Baowu Group. Relying on Baowu Group's advanced management platform and unique geographical location, we believe that the company's financial situation and profitability may continue to improve, and we are firmly optimistic about the company's later development. Investment recommendations The pandemic had an impact on the company's profits in the first half of the year and iron ore prices remained high. Therefore, we adjusted the company's EPS for 2020-2022 from 0.80/0.82/0.93 yuan/share to 0.74/0.76/0.86 yuan/share to maintain the “buy” rating. Risk warning: Prices of raw materials fluctuate greatly, demand has dropped sharply due to the epidemic, company operating risks, etc.