The company's 20H1 realized operating income of 703 million, year-on-year-29.55%, and homed net profit of-24 million, + 49.46% of the same period last year. During the reporting period, the company reduced its revenue due to the reduction of the size of non-autonomous products that lacked core competitiveness, or its profitability improved due to the increase in the proportion of high gross margin warning radar. Taking into account the development prospects of the company's radar and security business and its status as a platform for the integration of micro-assets in the future, maintain the "buy" rating, with a target price of 60 yuan.

Revenue of projects lacking core competitiveness declined and gross profit margin rebounded compared with the same period last year. The company's 20H1 realized operating income of 703 million, year-on-year-29.55%, and homed net profit of-24 million, + 49.46% of the same period last year. During the reporting period, the company reduced the size of non-independent products that lacked core competitiveness, resulting in a decrease in revenue; the proportion of radar products with high gross margin increased from 43.46% to 48.95%, with an overall gross profit margin of 25.17%, year-on-year + 8.88pcts Affected by the epidemic, sales-related labor costs and after-sales service fees decreased compared with the same period last year. During the reporting period, sales expenses were 39 million, year-on-year-39.39%. The other three expenses were relatively stable, but due to the decline in revenue, the expense rate still increased to 29.20% year-on-year. Taking all the influencing factors into account, the net interest rate during the reporting period was increased by 1.3pcts to-3.28%, and the loss was significantly reduced compared with the same period last year. The company is reducing projects that lack core competitiveness, and its performance is expected to return to growth in the future as radar orders pick up and the profitability of the public safety business improves.

Increase investment to focus on digital upgrading of production lines to promote high-quality business development. During the reporting period, the net cash flow generated by the company's operating activities was-651 million, year-on-year-9.07%, of which 748 million was received in the sale of goods and services,-47.34% compared with the same period last year, due to the decrease in rebates from subsidiary Bowei Changan perceived low-altitude projects over the same period last year. It is expected that the company's cash flow will improve in the second half of the year with the increase in sales rebates. The advance payment at the end of the reporting period is 166 million, which is + 123.99% compared with the same period last year, which is mainly due to the advance payment of cooking vehicle and Tsinghua Taihao project in the new mobile security field of Bo Wei Changan; the contract liability is 408 million, which is + 28.11% compared with the advance payment in the same period last year, or it means that the company's order has gradually warmed up, and the contract payment received in advance according to the agreement has increased. The construction of the special industrial park continued to be invested during the reporting period, with 145 million under construction at the end of the period, + 51.44% of the same period last year. After the completion of the special industrial park, the company will create the "Microwave Circuit Board Intelligent Manufacturing Benchmarking demonstration Project" to realize the digital transformation of the production line, improve production capacity and production efficiency, and promote high-quality business development.

Due to the increase in gross profit margin or due to the increase in the proportion of warning radar, we are optimistic about the long-term development prospect of radar business. During the reporting period, the company realized radar and radar supporting product revenue of 344 million, year-on-year-20.66%, gross profit margin increased to 32.52%, but subsidiary Bowei Changan achieved revenue of 173 million yuan, up 62.5% from the same period last year. Bowei Changan is mainly engaged in warning radar, which accounted for 94.61% of the revenue from warning radar business from January to September 2015, while the overall gross profit margin of Bowei Changan was 39.84% in the same period. We believe that the decline in revenue from the company's radar business and the increase in gross profit margin may be due to an increase in the share of revenue from vigilance radar. The company's weather radar technology and products have made new progress. The deep ploughing of civil aviation ATC radar market has won the bid for two ATC radar overhaul projects and the second radar project of China Flight Test and Research Institute. during the reporting period, the highly integrated microwave digital composite substrate with fully independent intellectual property rights was successfully developed, and the subsidiary Bowei Changan is making every effort to do a good job in the development and production of the new generation warning radar prototype. It is expected that the company's radar business will continue to improve in the future as the bidding for air traffic control radar and weather radar resumes and the demand for warning radar increases.

The status of the listing platform is clear, and the injection of high-quality assets can be expected. In 2018, China Electric Power Group was established on the basis of eight, sixteen, 38 and 43 companies. On December 31, 2019, the company announced the completion of the change of major shareholders. CLP 38 transferred its 45.67% of the company's shares to CLP Bowei for free, and the company has a clear position as a listing platform for CLP Bowei's operation. CLP Branch 8, 16, 38 and 43 are respectively the authoritative institutions of optical sensing, cryogenic electronics, military radar electronics and hybrid microelectronics in China. In the future, with the steady progress of the restructuring of scientific research institutes and the mixed reform of the group, the high-quality institute assets of CLP Bo Wei are expected to be injected into listed companies, thickening their performance and enhancing the company's core competitiveness.

Risk factors: the recovery of radar business is not as expected, the bidding for public safety-related products is not as expected, and the capital operation is slower than expected.

Earnings Forecast, valuation and Investment advice: taking into account the impact of business adjustments on the company's performance, we have lowered our 2020 EPS forecast for 21 years to 0.86 won 1.10 yuan (the original forecast was 1.61 pesos 2.02 yuan, and gave the 2022 EPS forecast 1.43 yuan).

The current price is 47.98 yuan, corresponding to the PE of 2020-21-22 is twice that of 56-44-34. Taking into account the development prospects of the company's radar and security business and its status as a platform for the integration of micro-assets in the future, maintain the "buy" rating, with a target price of 60 yuan.