Event: the company released its semi-annual report for 2021. In the first half of 2021, the company achieved revenue of 401 million yuan, an increase of 28.85% over the same period last year, and a net profit of 126 million yuan, an increase of 6.60% over the same period last year.

Comments:

Income maintained rapid growth, while net profit growth slowed in the short term. In the first half of 2021, the company's revenue growth rate was 28.85%, and the net profit growth rate was 6.60%. The main reasons why the net profit growth rate was lower than the revenue growth rate were as follows: (1) affected by the 2020 budget, market competition and other factors, the gross profit margin of orders obtained showed a certain decline. (2) the investment in R & D of new products is growing rapidly, the cost of new business development is increasing, and they no longer enjoy preferential policies such as social security relief during COVID-19 's epidemic in the same period last year. In terms of business, the revenue of the environmental monitoring system in the first half of the year was 223 million yuan, an increase of 39.74% over the same period last year, and that of operating services was 145 million yuan, an increase of 10.69%.

The market competition intensifies and the gross profit margin is under short-term pressure. In the first half of 2021, the company's comprehensive gross profit margin was 46.53%, down 4.35 pct from the same period last year; from a business point of view, the gross profit margin of the environmental monitoring system was 47.44%, down 9.94 pct from the same period last year; and the gross profit margin of operating services was 49.45%, an increase of 3.12 pct over the same period last year. The decline in the gross profit margin of the environmental monitoring system is mainly due to the intensification of market competition in 2020, and the gross profit margin of obtaining orders has declined. Affected by the decline in gross profit margin, the company's net profit rate also dropped more in the first half of the year. In the first half of 2021, the company's net profit rate was 31.29%, down 6.54pct from the same period last year. In the first half of the year, the company's total expense rate was 15.87%, an increase of 0.78pct over the same period last year; of which the management expense rate was 3.71%, down 0.58pct, and the financial expense rate was-1.36%, down 0.59 pct from the same period last year; and the R & D expense rate was 7.01%, increasing 1.31pct over the same period last year. The sales expense rate was 6.51%, an increase of 0.63pct over the same period last year, mainly due to the low sales expenditure due to the impact of last year's epidemic.

The demand for environmental monitoring equipment during the 14th five-year Plan is expected to grow rapidly and the new business will expand smoothly. According to the outline of the Ecological Environment Monitoring Plan (2020-2035), during the 14th five-year Plan period, the number of national control monitoring sections of surface water increased from 2050 to about 4000. At the same time, monitoring indicators will also increase significantly, and we believe that the demand for monitoring equipment is expected to grow rapidly. In addition, the company is making great efforts to develop urban environmental monitoring and consulting services and ecological environmental services in industrial parks, and has launched a new generation of environmental monitoring service model of "new infrastructure + urban environmental services". This kind of business has been demonstrated in the projects of "special protection period of air pollution" in Xiongan New District Baiyangdian Basin, Chengdu Quanshui River Basin, Dianchi Lake Basin and Changsha High-tech Zone. Some achievements have been made in the supervision of service ecological environment and the expansion of application scenarios.

Profit forecast and investment rating: we expect the net profit from 2021 to 2023 to be 296 million yuan, 368 million yuan and 470 million yuan respectively, the corresponding EPS is 1.24,1.54 yuan and 1.97 yuan per share, respectively, and the corresponding share price PE is 16 times, 13 times and 10 times respectively.

Maintain the company's "buy" rating.

Risk factors: the prevention and control of sewage during the 14th five-year Plan is not as strong as expected; market competition aggravates the risk.