Main points of investment

Centralized settlement helps Q4 to perform well. In 2016, the company achieved operating income of 297 million yuan, an increase of 74% over the same period last year, and a net profit of 9.98 million yuan, an increase of 42% over the same period last year. In a single quarter, the company's Q4 achieved revenue of 210 million yuan, an increase of 52% over the same period last year, and a net profit of 41.18 million yuan, an increase of 44% over the same period last year. Q4 has a high increase and accounts for the basic contribution to the annual profit, which is mainly affected by the settlement of sponge PPP project and planning & consulting income in Q4. The company predicts that the net profit of 2017Q1 is-2000 Murray 15 million yuan.

During this period, the cost is well controlled and the cash flow situation continues to improve. In 2016, the revenue of environmental protection equipment and materials and technical consulting and planning services was 8042 and 198.72 million yuan respectively, an increase of 63% and 151% over the same period last year, which was the main driving force for the company's annual revenue growth. The gross profit margin of technical consulting and planning services declined slightly but remained at a high level. The sharp increase in gross profit margin of environmental protection equipment and materials led to a 4.5 percentage point increase in overall gross profit margin to 42.4%. In terms of period expenses, although it is in the period of business expansion and layout, the rates of management expenses and sales expenses have decreased significantly compared with the same period in 2015, reflecting excellent management and control capabilities. The net cash flow of business activities for the whole year was 48.1 million yuan, an increase of 69% over the same period last year.

The assessment time is approaching, and the construction of sponge and black smelly PPP is accelerated. In the environmental protection PPP project, the sponge project has obvious advantages in policy support, order enforceability, project profitability, government payback guarantee and so on. Considering that the assessment nodes of the first batch of pilot cities will be ushered in at the end of 2017, the investment and construction work of pilot cities will undoubtedly be accelerated accordingly; judging from the progress of bidding, the accumulation of experience has significantly accelerated the bidding work of the second batch of pilot cities. Among them, Yuxi and Sanya have completed their tenders, and cities such as Zhuhai and Fuzhou are actively promoting them. The approaching assessment and mechanism innovation will significantly accelerate the release of sponge and black smelly PPP orders in 2017, the intensive landing of projects, the acceleration of governance will run through the whole year, and the investment peak will be determined. Considering the outstanding advantages of the company and the abundance of orders, it is worth layout in the medium and long term.

Accelerate the business layout and improve the industrial chain, and the performance inflection point is coming. Relying on the competitive advantages of technology, management, resources and investment and financing capabilities, the company will continue to promote the acquisition of sponges and black smelly orders, and build a listing platform with planning and design, investment, construction and operation of the whole industry chain. In addition, the company is also planning intelligent drainage, soil remediation and other emerging environmental protection to make a difference, improve the industrial chain and contribute to the creation of new profits. At present, the company is actively using industrial funds, Dingzeng and other channels to raise development funds, and the participation of a large proportion of major shareholders and related parties will show confidence in development. The company is tracking a large number of projects, and has won Qian'an, Suining, Yuxi and other sponge PPP projects, totaling about 3.5 billion yuan, the above projects will start on a large scale in 2017, helping the performance to be significantly elastic.

Risk hint. The progress of additional issuance is uncertain; the bidding progress of PPP project in Sponge City is not as expected; the follow-up construction progress of PPP project is not as expected.

Maintain a "buy" rating. Taking into account the slow pace of fixed growth affecting the acquisition of orders and follow-up promotion, the 2018 net profit forecast for 2017 is lowered to 176,000,000 yuan (the original 283cm is 452 million), and the forecast for 2019 is 464 million yuan, and the EPS for 2017 is 0.18ppm, which is 0.29x0.46 yuan (for 19s), corresponding to P/E48/28/18 times. The core points of the company are: (1) the scarcity or even uniqueness of the investment target in the field of sponge city; (2) it is expected to become an important layout of the environmental protection strategy of the cleaning and control system, and the follow-up integration is worth looking forward to; (3) the order is abundant and the large-scale construction period has come. the performance inflection point is coming; (4) the potential value of Pingshan land is outstanding to provide important safety marginal support. Taking into account the above factors, with reference to the industry valuation and the company's scarcity, the company is given a "buy" rating corresponding to the target price of 11.80 yuan, with a target of 40 times the target Ppace E in 2018.