The performance is generally in line with expectations: the company released its 2016 annual report and achieved revenue of 1,009 billion yuan, an increase of 11.58% over the previous year; realized net profit of 98.6572 million yuan, an increase of 17.3% over the previous year; net operating cash flow of 189 million yuan, EPS of 0.23 yuan, and ROE of 10.38%. Profit distribution plan: It is proposed to distribute a cash dividend of 0.3 yuan (tax included) for every 10 shares. The growth trend of membrane products is good, and the development of brown fiber is under pressure: in 2016, 95% of the company's revenue came from membrane products from the wholly-owned subsidiary “Time Wharton” and the brown fiber products of the subsidiary “Nature” (51% shareholding). Among them, Times Wharton Film products achieved revenue of 592 million yuan (+12.8%), net profit of 126 million yuan (+20.5%), and gross profit margin of 52.97% (+2.44 pct) in 2016. Times Wharton has leading technology and large-scale production capacity in the domestic composite reverse osmosis membrane industry, and is the lead undertaker for various national projects such as 863 and 973. In 2016, the company announced an investment of 260 million yuan to build a nanofiltration membrane and plate ultrafiltration membrane production line. The construction period is expected to be 24 months, and production will be fully completed in 2020. After completion, it will be replaced by imports at a high cost ratio, so there is good room for development. The subsidiary Nature's brown fiber business achieved revenue of 371 million yuan (+15.7%) and net profit of 33.5 million yuan (-5.88%) in 2016. Competition in the furniture industry where brown fiber is located was intense, putting pressure on the company's operations; the gross profit margin was 33.1% (-6.3 pct), due to 1) rising raw material prices, 2) new relocation of plants, and 3) equipment consolidation and increased depreciation expenses. The company announcement shows that Nature is the largest plant mattress manufacturer in the industry. In the future, the company will strengthen new product development and channel management to continuously consolidate its leading position in the industry. Membrane products/water purifier/industry fund/overseas water treatment engineering services go hand in hand, and the multi-faceted layout of the water treatment and environmental protection industry: in addition to Times Wharton membrane products, the company announced the establishment of Huitong Water Purification (45% investment ratio) to engage in water purification equipment business in 2014; the company announced the establishment of an energy saving and environmental protection industry fund in 2015; the 2016 announcement with the Guizhou Maritime Silk Road International Investment Company, India's Andhra Pradesh government signed a tripartite “Memorandum of Understanding” to help the company obtain municipal water supply and sewage treatment in Andhra Pradesh, India seawater Orders for engineering services in other fields have been reduced, and overseas markets have expanded at an accelerated pace. The current water environment situation in China is serious, and there is broad scope for the future of the water treatment industry. CRRC is the only environmental protection platform, and the pace of expansion is accelerating: the controlling shareholder of CRRC Industrial Investment is CRRC, and the scope of business of CRRC Industrial Investment is investment in environmental protection, energy and other fields. The company is the only environmental protection platform under CRRC and will benefit significantly from state-owned enterprise reforms in the future. The company announced on April 5 that it signed a “Financial Advisory Cooperation Agreement” with “Yuhua Asset Management”. According to the agreement, Yuhua will assist the company in carrying out extension mergers and acquisitions. It is expected that the pace of the company's extension strategy will accelerate. Investment suggestions: The company's 2017-2019 EPS is estimated to be 0.34/0.44/0.51 yuan respectively. The company has a diverse layout in the water treatment and environmental protection industry, and as CRRC's only environmental protection platform, there is broad scope for development. Continue to maintain the buy-A investment rating. The target price for 6 months is 18.48 yuan, which is equivalent to 42 times PE in '17. Risk warning: State-owned enterprise reforms fall short of expectations, raw material prices fluctuate, and downstream competition intensifies