Investment highlights: Key points. Tianrui Instruments today released its 2016 semi-annual performance forecast, achieving net profit attributable to shareholders of listed companies of 344.0.71 to 37.1597 million yuan, an increase of 25-35% over the previous year. It is estimated that the amount of non-recurring profit and loss during the reporting period will be around 15.6 million yuan. The increase in performance was mainly due to Tianrui's environmental merger. In April 2015, the company used overraised capital of 135 million yuan to acquire 100% of Winning Environmental Protection's shares, then changed its name to “Tianrui Environmental”. Tianrui Environmental specializes in the design and construction of environmental protection projects, and has rich experience in the fields of industrial wastewater treatment, environmental protection operation, and sales of water treatment chemicals. Tianrui's environmental revenue was consolidated starting in May 2015, and the 2015-2017 performance promises were 12, 15, and 18 million yuan, respectively. “Tianrui Environmental” achieved a profit of 12.1492 million yuan in 2015, meeting the performance promise, and is expected to achieve net profit of about 7.3 million yuan from January to June 2016. Due to the concentration of environmental project settlements in the second half of the year, it is expected that the annual performance promise will be met. From May to June 2015, Tianrui Environmental achieved net profit of 3,429,800 yuan. The consolidated net profit for the first half of this year increased by about 3.9 million yuan compared to the same period last year. Even if the performance of the company's traditional instrument business in 16/17 is the same as in 2015, the fulfillment of Tianrui's environmental performance commitment will bring at least 25% or 20% growth to the company. Also, since there were only 8 months of consolidated revenue in 2015, performance growth is expected to be higher than this level. Benefiting from growing monitoring demand in emerging fields such as soils and VOCs. As a leading enterprise in the analytical instrument industry, the company has strong technical strength. The company's average R&D expenses over the past five years were 37.62 million yuan, and the average R&D expenses accounted for 12.35% of sales revenue. By the end of 2015, the company and its subsidiaries had obtained 196 authorized patents. The company established an environmental protection division in 2015, specializing in R&D, production, after-sales and sales of environmental monitoring instruments. With years of accumulation, it now has a full range of heavy metal portable testing and online testing products, and continues to enrich the product line, covering products such as soil monitoring, online monitoring of VOCs, biotoxicity testing, online monitoring of pollution sources, online monitoring of surface water, and online air quality monitoring. With the rise of markets such as soil and VOCs treatment, front-end monitoring demand will take the lead, driving the growth of the company's traditional monitoring instrument business. Industrial funds help the company expand its outreach. The company adheres to the long-term strategy of “using capital advantages to carry out industrial mergers and acquisitions and expand the company's business areas”. In April 2016, the company officially invested and established the “Oriental Tianrui M&A Fund (Limited Partnership)” with Shanghai Oriental Ruide. The M&A fund invested a total of 301 million yuan, and Tianrui Instruments, as a limited partner, pledged an investment of 61 million yuan, accounting for 20.27% of the total investment. The M&A fund focuses on the industrial integration of Tianrui Instruments, and mainly invests in the fields of environmental protection, food safety and life science. Using the financial advantages of M&A funds, the company will promote its industrial chain layout in the field of environmental monitoring and management by combining its own advanced analytical and monitoring technology and equipment. Profit forecasting and valuation. The company is expected to achieve net profit attributable to the parent company in 2016 and 2017 to be 8472 and 112.47 million yuan respectively, corresponding to EPS of 0.18 and 0.24 yuan respectively. It is expected that Tianrui's environmental performance promises will be fulfilled, and the analytical instrument industry will encounter the “Ten Rules of Land” opportunity in 2016. Comparing the valuation situation of companies in the same industry and the application of the company's products in emerging fields such as soil monitoring and medicine, the company is 85 times PE in 2016, corresponding to the target price of 15.3 yuan, giving the company a purchase rating of 15.3 yuan. Risk warning. 1. Tianrui Environmental's performance promises in '16 and 17 fell short of expectations. 2. In the field of soil and VOCs, the growth rate of demand for the company's related products fell short of expectations due to slow policy advancement. 3. Lack or loss of core technical personnel. 4. Competition in the industry has intensified, and gross margin has declined.