Investment highlights:

There was a slight increase in performance in the first half of the year, in line with expectations. The company announced its 2016 semi-annual report with operating income of 343,615 million yuan, an increase of 7.04% over the previous year; net profit attributable to shareholders of listed companies was 7.336,800 yuan, an increase of 5.37% over the previous year, in line with expectations. Traditional businesses increase marginal profits by extending the industrial chain downstream, increasing technological content, and entering the field of water environment management, etc., and are expected to provide stable cash flow and provide space for the layout of the sports industry. Maintain the company's 2016-2018 EPS forecast of 0.01/0.03/0.05 yuan, maintain the target price of 20.3 yuan, and the “increase in holdings” rating.

Comprehensive utilization of water resources is expected to provide a stable cash flow. The company has the largest water area in the country. Using the natural extension of the water area industry chain to increase marginal profits by extending the industrial chain downstream, increasing technological content, and entering the field of water environment management, etc., it is expected to provide a stable cash flow for the company.

The “Boxing Star Era” tournament brand and entertainment attributes have made another breakthrough. The martial arts event “Boxing Star Era” sponsored by the company has signed a cooperation agreement with CCTV. On September 23, “Boxing Star Era” will play its fifth game in Beijing, which will also be the first appearance since landing on CCTV. The game is scheduled to be broadcast on 5 CCTV stations during prime time on Friday night from 19:30-21:30. We believe that cooperation with CCTV will greatly enhance the brand value of the tournament. Furthermore, “Boxing Star Era” has a pan-entertainment layout based on its own high-quality IP, and plans for big movies and the opening of fight gyms are steadily advancing, effectively expanding the brand's reach from simple hardcore fighting fans to the general public. Since the company has already appointed Yang Jianping, the founder of “Boxing Star Era”, as the vice president and is in charge of the sports industry, we determine that the level of cooperation between the company and “Boxing Star Era” may go deeper.

Catalysts: Non-public offering completed; transformation projects implemented.

Core risks: Traditional businesses decline further; transformation progress falls short of expectations.