Q2 single-quarter revenue and profit increased by 20% and 23% compared with the same period last year, and the elevator main industry is expected to return to steady development. 2020H1 income is 109.77 billion yuan / yoy+1%, net profit is 593 million yuan / yoy-7%, of which Q2 single-quarter income is 7907 billion yuan / yoy+20%, net profit 498 million yuan / yoy+23%, elevator demand recovery and price stabilization (gross profit improvement) are important factors for Q2 to achieve rapid profit growth in a single quarter. We believe that in the short term, Q2 market demand repair is more effective in hedging the negative impact of the Q1 epidemic on the annual performance; in the medium to long term, the domestic elevator market resumes stable operation, and the installation of elevators in old residential areas is expected to contribute to a certain incremental demand, post-market service revenue or new growth points, the company's elevator business has stability and long-term growth, while the new industrial layout has a bright future. We expect EPS to be 1.08,1.13,1.19 yuan in 2022, maintaining the "overweight" rating.

Q2 domestic elevator market demand repair, company elevator main business obvious recovery, gross profit margin improvement with the effective relief of the domestic epidemic, the impact of real estate, infrastructure rapid recovery, domestic elevator demand in Q2 began to recover growth, according to the National Bureau of Statistics data, in April 2020 domestic elevator monthly output returned to year-on-year growth (13%), January-June domestic cumulative elevator production reached 500000, an increase of 2%. Benefiting from the recovery of demand and the company's ability to further strengthen production, marketing and service, H1 company has achieved 10.4 billion yuan / yoy+3% in elevator revenue. The company's 2020Q2 single-quarter gross profit margin reached 16.90%, which is higher than in the previous four quarters (2019Q2~2020Q1 single-quarter gross profit margins were 16.44%, 16.27%, 16.39% and 14.66%, respectively). We believe that as the industry economy repairs and prices stabilize, the company's elevator revenue is expected to maintain steady growth in the second half of the year, and the gross profit margin or month-on-month margin will remain stable.

The renovation of old residential areas is expected to contribute to incremental demand, and the slowdown in post-market service income or new growth points of real estate development will have a certain impact on the demand for new elevators. however, after the installation of elevators and the demand for market services, the overall capacity of the elevator industry has increased steadily: 1) on July 20, the State Council issued the guidance on comprehensively promoting the renovation of Old Urban Residential areas. It is clear that by the end of the 14th five-year Plan period, we will strive to basically complete the task of transforming the old urban residential areas completed before the end of 2000, and take the installation of elevators as one of the main transformation contents. The company has launched a lifecycle one-stop elevator service, with an increase of more than 30% in 2019. We believe that the installation of elevators will continue to contribute to the growth of the company. 2) the proportion of service income of Chinese enterprises is generally lower than that of overseas, and the company is speeding up its post-market expansion. In the case of delayed resumption of 2020H1 epidemic, the income of installation, transformation and maintenance still reaches 3.22 billion yuan, accounting for 29% of the income.

Steady demand, diversified layout of the local elevator manufacturing leader, to maintain the "increase" rating, we believe that under the positive factors such as the renovation of old residential areas, the development of infrastructure such as subways, and the release of demand for the renewal of old ladders, superimposed service-oriented strategic transformation, the company's elevator business is expected to achieve long-term steady development. At the same time, as the local leader, the company's ability to control the cost side is expected to be better than that of the industry as a whole, while benefiting from the increase in the share of service revenue, medium-and long-term gross profit margin may have room for repair. We maintain our previous profit forecast and expect the company to achieve a net profit of 11.1,11.6 and 1.22 billion yuan respectively from 2020 to 2022, corresponding to 16, 15 and 14 times PE. The average PE (Wind consensus forecast) of comparable companies in the elevator industry in 2020 is 19 times, giving the company a reasonable PE of 19 times in 2020, corresponding to the target price of 20.52 yuan (16.20-19.44 yuan).

Risk tips: the growth rate of real estate investment is lower than expected; the process of renovation and installation of elevators in old residential areas is not as expected; the promotion and layout of new industries and new products are not as expected; the price of raw materials is higher than expected.