Event: the company released its semi-annual report for 2020, with revenue of 2.366 billion yuan in the first half of the year, down 10.38% from the same period last year; net profit of 278 million yuan, down 23.80% from the same period last year; and net profit of 262 million yuan after deducting non-return, an increase of 12.64% over the same period last year. In 2020, Q2 realized revenue of 1.409 billion yuan, an increase of 0.01% over the same period last year, an increase of 47.23% over the same period last year, a net profit of 193 million yuan from the same period last year, a decrease of 5.96% over the same period last year, an increase of 127.06% over the previous year, and a net profit of 175 million yuan after deducting it, an increase of 2.45% over the same period last year and 98.86% over the previous year.

Q2 gross profit margin reached an all-time high in a single quarter, and the transformation of independent brands achieved results: the company's Q2 gross profit margin reached 35.13%, up 4.06 pct from the same period last year and 1.31 pct from the same period last year. The company plans to vigorously expand the sales channels of independent brand products and increase the proportion of sales of independent brand products. The management decided to further change the sales model from OEM mode to independent brand and independent market. The company's Q2 net profit rate was 13.71% in a single quarter, an increase of 4.86 pct compared with the previous quarter, and the transformation of its own brand has achieved initial results. In terms of profit quality, the company achieved a net profit of 262 million yuan in the first half of the year, an increase of 12.64% over the same period last year; in the same period last year, the company held 97.971 million yuan in the fair value of Great Wall Securities, and the fair value change income in the current period was-14.938 million yuan. Considering the impact of non-recurrent profit and loss, the company's profitability improved in the first half of the year.

The contract manufacturing business has taken the initiative to shrink, and the new management is firmly committed to its own brand strategy: the company's revenue in the first half of the year decreased by 10.38% compared with the same period last year, mainly due to the novel coronavirus epidemic and more than 40% decline in OEM sales compared with the same period last year. China's LED industry chain is complete and has become the largest producer and exporter of lighting appliances in the world. With the accelerated integration of overseas leaders of LED lighting industry, it brings historic opportunities for Chinese lighting enterprises to expand overseas. The management of the company continues to firmly implement the independent brand strategy, take the initiative to shrink the contract manufacturing business, and it is expected that the revenue share of independent brands will increase.

The company's four major transformations conform to the great changes in the industry and create the influence of an international brand: in the process of the transition of the lighting industry from traditional products to LED products, the company carries out strategic transformation and adjustment according to the general trend of the industry, mainly including: 1, technological transformation, transformation from traditional fluorescent lamp technology to LED solid-state technology; 2, product structure transformation, transformation from traditional fluorescent light source products to lighting lamps and lanterns products 3. Customer structure transformation, from OEM mode to independent brand; 4, management mode transformation, from business group to management group. The strategic transformation of the company conforms to the great changes in the industry in which the overseas big companies withdraw from the integration, the endogenously strengthens the group management, the layout intelligent lighting, pays attention to the talent incentive and so on, constructs the core competitiveness of the group company, the extension aspect buys the domestic and foreign channel and the brand company on a large scale, strengthens the independent brand construction dynamics and so on is expected to create a new generation of international lighting industry leading enterprises.

Maintain the "highly recommended" rating: we are optimistic that the company will gradually shrink its contract manufacturing business of international manufacturers and build its own brand influence in line with the trend. It is estimated that the company's homing net profit from 2020 to 2022 will be RMB 581, 632, 0.29 million, respectively, EPS 0.40, 0.44, 0.50, corresponding to PE 12x, 11x, 9X, respectively, maintaining a "highly recommended" rating.

Risk tips: 1. Downstream demand is lower than expected; 2. The channel expansion is not as expected; 3. The increased risk of international trade friction; 4, the risk of exchange rate fluctuations; 5, independent brand building is not as expected.