Event: the company recently released its semi-annual report for 2020. during the reporting period, the company achieved revenue of 297 million yuan (year-on-year-26.78%), net profit of 18.0804 million yuan (year-on-year-65.47%), and non-return net profit of 14.8665 million yuan (year-on-year-62.10%). Among them, the company's Q2 in 2020 achieved revenue of 186 million (year-on-year-3.34%, month-on-month + 66.67%), net profit of 12.1683 million yuan (year-on-year-34.04%, month-on-month + 105.82%), and non-return net profit of 9.3289 million yuan (year-on-year-44.96%, month-on-month + 68.46%).

The performance has improved significantly compared with the previous month, the epidemic situation has faded, and the company is optimistic about its development in the second half of the year. During the reporting period, affected by the COVID-19 epidemic, the delay in the resumption of work in the upstream and downstream of the company and the local isolation policy had a great impact on the company's operating activities in the first half of the year, resulting in a decline in the company's operating income and net profit in the first half of the year compared with the same period last year, but the Q2 single-quarter income and net profit of the company have been significantly improved, and the impact of the epidemic on the company is gradually fading. In terms of products, the company's ink business and paint business achieved revenue of 103 million yuan (34.68%) and 161 million yuan (54.21%) respectively in the first half of the year, down 34.54% and 32.51% respectively compared with the same period last year. However, benefiting from the decline in the prices of major raw materials, the company's overall gross profit margin improved. During the reporting period, the company's overall sales gross profit margin was 37.31%, year-on-year + 1.69 pct, of which ink business and paint business gross profit margin were 33.25% and 40.97% respectively, + 9.58 pct and + 0.91 pct respectively. Considering that the impact of the current COVID-19 epidemic in China has gradually faded, with the gradual recovery of downstream demand, the development of the company's ink and paint business is expected to be restored, we are optimistic about the development of the company, and believe that the company is expected to make a profit inflection point in the second half of the year.

Hongtai subsidiary contributes a lot to its performance, and technology plus brand promotion contributes to the development of the company. In the first half of this year, Jiangsu Hongtai, a wholly owned subsidiary of the company, realized operating income of 148 million yuan and net profit of 17.8547 million yuan, which is the main source of contribution to the company's performance. In the field of special coatings, after years of development, Hongtai has accumulated a number of long-term customers with strong comprehensive strength, among which in the field of mobile phone manufacturing, Hongtai has maintained long-term close cooperation with major domestic mobile phone terminal brands such as Huawei, OPPO and Lenovo, and has established a good and long-term cooperative relationship with its first-level foundry, such as Shenzhen BYD and Jiaxing Wentai. Recently, Jiangsu Hongtai won the single champion of "mobile phone paint" in the list of 2019 Chinese paint industry champions released by Tu Jie. In addition, during the reporting period, Hongtai added 3 new authorized invention patents. Up to now, the company has 33 authorized invention patents, 78 utility model patents and 1 design patent. We continue to be optimistic about the development of Hongtai subsidiary and believe that with Hongtai's continuous breakthroughs in product technology and brand strength, it is expected to continue to make efforts in the fields of automobiles and home appliances in the future.

Enter the Indian iron ink market, the company is expected to meet the new performance growth point. During the reporting period, the company set up a holding subsidiary Jiangyin Guangqing to enter the UV printing iron ink industry. UV printing iron ink series as a substitute for traditional solvent-based environmental protection products, with fast curing speed, strong adhesion, environmental protection, high efficiency, energy saving and other advantages, mainly used in chemical packaging, food packaging, electronic products protective film and other fields, with huge market prospects in the future. Jiangyin Guangqing began to merge the table in March this year, and the products are currently in the market promotion stage. We believe that with the continuous strengthening of the promotion of UV printing iron ink, this business is expected to become a new performance growth point for the company.

The photoresist project is advancing steadily, and the general trend of semiconductor localization promotes the development of the company. As of June 30 this year, the company has commissioned the project of "UV positive photoresist for printed circuit boards, flexible substrates and other uses" developed by new materials in Taiwan, and has made some achievements in research and development. The first batch of products of the project has achieved research and development results, and has been successfully tested by customers in Taiwan, China. The performance and quality of the products meet the needs of customers, and now it has entered the preparation work of technology transfer and the second batch of R & D products. The cooperation project between the company and Yuanzhi New Materials is an effective supplement and extension of the company's existing light-cured products and technologies. Considering that photoresist products can be mainly used in PCB, LED panels, semiconductor components and other fields, with the continuous promotion of the general trend of autonomy in the semiconductor industry, the company's photoresist project is also expected to make a breakthrough.

Investment suggestion: the company is a leading enterprise in the domestic PCB ink industry. Jiangsu Hongtai, a wholly-owned subsidiary of the company, is developing healthily, and its technology and brand power are gradually strengthening. In addition, the company's layout of iron printing ink and photoresist projects are expected to inject new profit growth points for the company. We believe that as the domestic epidemic gradually recedes and downstream demand continues to recover, the performance growth this year is expected to reach an inflection point in the second half of this year. The company is expected to achieve revenue of 653 million yuan, 832 million yuan and 1.013 billion yuan in 2020-2022, up-19.3%, 27.5% and 21.7% respectively over the same period last year, and the net profit of returning mother is 46 million yuan, 73 million yuan and 95 million yuan respectively. Year-on-year growth of-36.6%, 59.6%, 30.2%, respectively, the corresponding share price PE of 67.27X, 42.14X and 32.37X.

Risk tips: downstream demand expansion is not as expected, capacity release is not as expected, raw material prices fluctuate, trade frictions intensify, and so on.