Incident Company released a performance forecast for the third quarter of 2020: it expects a profit of 0.6-0.8 billion yuan in a single quarter, an increase of 14%-43% over the previous year; it is expected to achieve profit of 23-240 million yuan in January-September, an increase of 14%-21% over the previous year. The third quarter results are expected to accelerate compared to the first half of the year. Key investment points All business sectors developed steadily, and the third quarter results achieved relatively rapid growth. In line with expectations, the impact of the epidemic weakened in the third quarter, and the growth rate of various business sectors such as electricity, rail transit, and military industry resumed. According to the median estimate of the performance forecast, 2 020Q3 is expected to achieve net profit of 72 million yuan in a single quarter, an increase of 29% over the previous year, an increase of 29% over the previous year, an increase of 12% compared to the 12% performance growth rate in the first half of the year. In Q3, excluding non-recurring profit and loss in a single quarter, the median net profit of $0.6 billion, YOY +20%, was higher than the 8% growth rate in the first half of the year. The matter of issuing additional shares has been accepted by the exchange, and projects such as the acquisition of Zhiliang Electronics are progressing steadily. The company received the “Notice on Accepting Application Documents for Hongxiang Co., Ltd. to issue shares to purchase assets and raise supporting capital” from the Shenzhen Stock Exchange on October 13. This additional offering still needs to be approved and registered by the Shenzhen Stock Exchange before it can be implemented. We expect that the acquisition of Zhiliang Electronics is progressing steadily. The military industry boom was high during the “14th Five-Year Plan” period. The company's military electronics business is expected to explode and benefit from increased downstream arms procurement. Orders related to the subsidiary Starwave Communications (mainly engaged in microwave hybrid integrated circuits) have exceeded expectations; the proposed acquisition target of Zhiliang Electronics is a leading private enterprise in the field of electronic warfare (mainly engaged in electronic reconnaissance, electromagnetic protection, radar anti-interference, and simulation training), which is highly scarce. Zhiliang Electronics promises that net profit after deduction for 2020-2022 will not be less than 4780, 5736, and 68.83 million yuan. Considering that the company has sufficient orders and strong ability to sign new orders, we believe that the company will probably exceed its performance promises. Profit forecasts and valuations are optimistic about the development prospects of military electronics business during the “14th Five-Year Plan” period. After the integration is completed, military electronics revenue is expected to account for 44% in 2021. The company's net profit for 2020-2022 is estimated to be 3.1/5.4/650 million yuan, with a year-on-year growth rate of 32%/75%/19%, respectively, and corresponding PE of 39/22/19 times. Maintain a “buy” rating. Risks suggest that the scale of railway or power grid investment falls short of expectations; Zhiliang Electronics mergers and acquisitions have failed; military order delivery progress is lower than expected; major shareholders' equity pledge risk; and the risk that restricted shares will be lifted.