Incidents: Henghua Technology released its 2020 semi-annual report. The company achieved operating income of 244 million yuan in the first half of the year, a year-on-year decrease of 44.96%; net profit of 34.3523 million yuan, a year-on-year decrease of 62.27%; net operating cash flow was -72.617,700 yuan, a year-on-year decrease of 61.63%; net operating cash flow was -72.6739 million yuan, a year-on-year decrease of 59.55%; and government subsidies for non-recurring profit and loss included in current profit and loss were 21777 million yuan. The design sector relied on online services to achieve steady revenue growth. The infrastructure management and electricity distribution business was greatly affected by the pandemic, and overall gross margin increased: Looking at the breakdown sector, the company's design sector achieved revenue of 194 million yuan, an increase of 15.77% over the previous year, and its share of total revenue increased 23.82 pct to 79.51% from the end of 19, mainly through online sales of commercialized 3D design software, while relying on online design institutes to provide 3D design services to promote continuous growth in the design sector business; while the infrastructure management sector's revenue was 31.6912 million yuan, the same The year-on-year decrease of 66.90% was mainly due to repeated offline outbreaks, limited on-site deployment work, and delays in project acceptance and settlement; in addition, under the double influence of the unfavorable promotion of power system reforms compounded by the epidemic, the informatization investment of customers of electricity distribution and energy use companies was reduced, while the company's offline operation and maintenance work was blocked, resulting in revenue of the distribution sector of 9.61885 million yuan, a year-on-year decrease of 94.17%; overseas and transportation and water industry businesses were affected by the epidemic to varying degrees, revenue was 8.8817 million yuan, a year-on-year decrease of 41.98%. Overall, the gross margin of the company's 20H1 business was 53.41%, a significant increase of 9.91 pct over the same period last year, and an increase of 1.87 percentage points from 51.54% in the full year of 2019. The effects of the company's strengthened cost control were evident. The cost rate increased slightly during the period, and investment in independent BIM technology and cloud product R&D continued to increase: in the first half of 2020, the company's period expense ratio (excluding R&D) was 13.28%, an increase of 1.26 pct over the previous year. Among them, the financial expense ratio was 0.56%, a year-on-year decrease of 0.09 pct, and financial expenses of 1,3774 million yuan, a year-on-year decrease of 52.46%, mainly due to an increase in exchange profit and loss and interest income; the sales expense ratio was 3.75%, a year-on-year decrease of 0.91 pct, and sales expenses of 9.1663 million yuan, a year-on-year decrease of 55.70%, mainly due to a decrease of sales staff performance and travel expenses during the pandemic; the management expense rate was 8.97%, up 2.26 pct year on year, management expenses of 219.95 million yuan, a year-on-year decrease of 26.40%. In terms of R&D, remote collaboration services for SaaS products developed independently by the company during the pandemic, such as the online design institute and remote knowledge, etc. The company continued to increase its investment in autonomous BIM-related technology and cloud business-related products. The R&D investment in the first half of the year was 44.892 million yuan, an increase of 12.84% over the previous year (full cost). With the gradual improvement of the R&D innovation mechanism, the company's core technology application and cross-industry service capabilities are expected to be further improved. Actively promoting cloud business transformation, new infrastructure informatization tasks open up new opportunities: during the pandemic, the company increased its marketing efforts and continued to expand the popularity and influence of cloud service platforms and a series of SaaS products. As of June 30, the number of registered users of the cloud service platform was 71,914, an increase of 12.33% over the end of 2019. The number of registered users of the Electronic+Smart Connect service cloud platform reached 38,655, an increase of 10.98% over the end of 2019. Meanwhile, in the first half of the year, the company officially released digital cost software products for the entire power engineering process, further expanding the cloud service product system. Under the industry trend of fully applying 3D design to the State Grid's new 35kV and above power transmission and transformation projects, the company quickly occupied a leading position in the market with a series of BIM-based 3D design software for power grids. On June 15, the State Grid announced the top ten key construction tasks for “new digital infrastructure”, focusing on big data, industrial Internet and other fields, and promoting the construction of power grid digital platforms, power big data applications, and energy industry cloud platforms. The total investment of the State Grid in 2020 was about 24.7 billion yuan, which is expected to drive social investment of about 100 billion yuan. As a comprehensive service provider for smart grid informatization, the company is committed to using cloud computing, big data, BIM and other technologies to deeply lay out energy Internet construction. In the future, it is expected to open up new opportunities in the process of fully rolling out the new infrastructure. Investment suggestions: The company is expected to achieve operating income of 1,098, 13.68 and 1,673 billion yuan and net profit of 357 million yuan, 4.40 and 545 million yuan in net profit in 2020-2022. EPS is 0.59, 0.73, and 0.90 yuan respectively, and corresponding PE is 18X, 15X and 12X, maintaining the “recommended” rating. Risk warning: The electricity reform process falls short of expectations; competition in the industry intensifies; the transformation of Internet services falls short of expectations; and the risk of a surge in bad accounts receivable.