Haitong Securities reported net profit of RMB 5.48 billion, which was basically the same as the previous year. Due to the COVID-19 outbreak and market fluctuations in the first quarter, the company's impairment losses increased 173% year over year to RMB 2.9 billion, so profit growth remained flat. We lowered our earnings per share forecast for fiscal year 20/21/21 by 7.2%/5.5%/4.7% to reflect the impact of rising impairment losses. We believe the situation should improve in the second half of 2020 as the economy recovers and the market climate improves. Reiterating the “Overweight” rating, the target price is HK$9.60 (0.73 times FY20 net market ratio). The steady increase in commission and fee revenue was offset by impairment losses, benefiting from the improvement in the A-share market. Haitong Securities recorded 7.35 billion yuan in commission and handling fee revenue in the first half of 2020, an increase of 18.3% over the previous year. Revenue from brokerage, investment banking, and asset management businesses increased by 22.4%, 34.4%, and 44.5%, respectively. However, net profit for the first half of 2020 was RMB 5.48 billion, roughly the same year on year, mainly due to impairment losses surging 173% year over year to RMB 2.9 billion. Several businesses recorded a significant increase in the company's impairment losses during the impairment loss period, not only due to Haitong International (0665.HK) loans (approximately US$80 million) related to the former majority shareholder of Lucky Coffee. Large market fluctuations have also led to an increase in impairment losses in the company's securities financing and equity pledge business. Furthermore, due to the relatively weak economic performance due to the COVID-19 pandemic, the financial leasing business has also been affected. The outlook for the second half of the year is expected to improve. At the performance conference call held on August 31, management said that as the economy recovers and the A-share market atmosphere improves, the pressure on impairment losses is expected to be greatly reduced in the second half of the year. The company believes that it is still too early to determine whether a refund will be made in the second half of the year. The investment banking business is expected to be stronger in the second half of the year. Haitong Securities's investment banking revenue increased by 34.4% year-on-year to RMB 1.6 billion. Judging from the projects currently on hand, management expects better performance in the second half of the year. On a net basis, investment banking revenue in the first half of the year accounted for about 9.6% of total revenue. Reiterate the increase in holdings We reaffirm the “increase in holdings” rating. We lowered our target price from HK$10.40 to HK$9.60 to reflect the impact of our adjusted profit forecast. According to Gordon's growth model, our target net market ratio is 0.73 times (beta value is 1.45; cost of equity is 9.84%; medium-term return on equity is 8.8%). The stock's current net market ratio for 2020 is 0.52 times, which is more than 1.5 standard deviations below the historical average. We believe this reflects very low market expectations. In the short term, the main catalyst came from a better response to the results of the third and fourth quarters of 2020.