Haishun New Materials 2020 Semi-Annual Report: In the first half of 2020, the company's operating income was 326 million yuan, up 7.2% year on year; net profit attributable to shareholders of listed companies was 47.14 million yuan, up 45.5% year on year; after deduction, up 71%. Revenue growth resumed: In the first half of the year, the company's revenue increased by 7.2%. Among them, Q2 achieved revenue of 170 million yuan in a single quarter, an increase of 21.3% over the previous year; the company's major business entities resumed production one after another in 3-4 months, and performance growth resumed. By business entity, the subsidiary Suzhou Haishun achieved revenue of 191 million yuan in the first half of the year, an increase of 24% over the previous year; Zhejiang Duoling, Suzhou Qingyi, and Shijiazhuang Zhonghui achieved revenue of 27.45 million, 32.28 million yuan, and 53.42 million yuan respectively, up 31%, -6%, and -5% respectively. Looking at the subregion, in the first half of the year, the company's domestic business was 296 million yuan, an increase of 9.9%; overseas business was 29.99 million yuan, a decrease of 13.3%. During the reporting period, the company continued to actively explore the market, and new customers and new products (such as multi-layer co-extruded films, etc.) all brought a certain increase; at the same time, it continued to actively cooperate with downstream pharmaceutical companies in related reviews to enhance the stickiness of cooperation with pharmaceutical companies and increase its own market share. In the first half of the year, 259 relevant authorized credits were issued to pharmaceutical companies, with a total of 909 copies issued since 2018. Profitability increased, and internal synergies gradually became apparent: in the first half of the year, the company's comprehensive gross profit margin was 33.7%, up 2.5% year on year; Q2, the overall gross profit margin for the single quarter was 36.8%, up 4.4% year on year. The increase in gross profit was partly due to lower raw material costs. In the first half of the year, the purchase price of aluminum foil, one of the company's main raw materials, fell by about 5.3%; on the other hand, as the company's revenue increased and capacity utilization increased, gross profit also recovered. During the reporting period, the company's expenses rate for the period was 19.46%, down 2.7% from the previous year; mainly because the management expense rate fell by 2.3%: the reduction in the management expenses rate mainly benefited from a decrease of 4.7 million yuan in amortization of equity incentive costs. Sales, R&D, and financial expense ratios increased by 0.3%, -1.1%, and 0.4% respectively. In the first half of the year, as the company progressed in an orderly manner with industrial collaboration, resource sharing, and management improvement of the acquired subsidiaries, the profitability of core subsidiaries turned losses into wins or improved. Among them, Suzhou Qingyi achieved profit of 2.37 million yuan in the first half of the year, with a profit margin of 5.4%; and Duoling Packaging achieved profit of 660,000 yuan in the first half of the year, a year-on-year decrease of 1.26 million yuan. At the same time, the company's Jiucheng Packaging merger period increased by two months compared to the same period last year, which accelerated the overall performance growth of Jiucheng. Investment income in the first half of the year increased by 4.3 million yuan over the same period last year. Cash flow has weakened: in the first half of the year, the company's operating cash flow was 50.44 million yuan, a year-on-year decrease of 65.8%; in Q2, the net operating cash flow for the single quarter was 1.08 million yuan, down 90.6% year on year, mainly due to a 33% decrease in cash received from the sale of goods and services, and a 73% increase in cash flow expenses for the purchase of goods and services, partly related to the company's withdrawal of payments and bank acceptance methods for payment of goods. The company's accounts receivable at the end of the reporting period were 170 million yuan, which was basically the same as the previous year; accounts payable and notes were 150 million yuan, which was basically the same as the previous year. Small enterprises in large industries, related reviews & volume procurement help reshape the industry pattern. Companies are expected to benefit: pharmaceutical packaging materials are in direct contact with pharmaceuticals, and their barrier properties, stability, compatibility with drugs, and residues directly affect the stability, expiration date, and safety of drug efficacy in drug storage. Due to its late start and poor quality, the pharmaceutical packaging industry still presents a typical pattern of small enterprises in a large market. There are more than 1,500 enterprises in the industry, and a large number of low-threshold small-scale enterprises fill the market. Under the industry trend of consistency evaluation & related review, the quality of pharmaceutical packaging materials will affect the evaluation results of pharmaceutical formulations. Pharmaceutical companies will also be responsible for the quality of the packaging materials used, and prefer to choose to cooperate with pharmaceutical packaging suppliers with high product quality, stability, and strong safety and security. Small enterprises with weak competitiveness will gradually withdraw from the market, helping leading high-quality pharmaceutical packaging companies to continuously increase their market share. As a leading enterprise in the pharmaceutical packaging materials industry, the company has leading technological research and development capabilities. It has high technical barriers upstream of core products such as cold-stamped aluminum, and is widely recognized by high-quality customers. On July 16, the company announced the signing of a contract with Huahai, with a tax amount of 53 million yuan (Huahai procurement amount of 10.33 million yuan in '19, purchase amount of 18.5 million yuan for the largest customer). Volume procurement and increased concentration brought a lot of room for growth to the company. Investment suggestions: According to the company's new construction project announcement, considering that Suzhou Haishun & Duoling Pharmaceutical Package production capacity climbs and the Nanxun project will gradually contribute profits after 21 years, performance growth is expected to accelerate. We expect the company's net profit attributable to shareholders of listed companies in 20-22 to be 118 million yuan, 188 million yuan, and 263 million yuan respectively, increasing by 76.0%, 59.6%, and 39.7% respectively, maintaining the “buy-A” rating, corresponding to PE of 37.3X/23.4X/16.7X yuan in 2020-2022. Risk warning: The increase in concentration falls short of expectations, the profit situation of the acquired company falls short of expectations, Aclar Edge's new product release falls short of expectations, and assumptions fall short of expectations.