Events: 1) The company released its 2016 annual report. In 2016, it achieved revenue of 488 million yuan, a year-on-year increase of 48.08%; net profit was 70 million yuan, an increase of 33.24% over the previous year; 2) The company issued a profit distribution plan that distributed a cash dividend of 1.27 yuan (tax included) for every 10 shares to all shareholders based on the total share capital of 186 million shares, while also using capital reserves to increase share capital by 20 shares for every 10 shares. Key investment points: Performance is growing steadily, and steel and coal are dragging down the performance of the supermagnetic separation business: According to the company's annual report data, the revenue growth rate in 2016 was 48%, net profit growth was 33%, and performance achieved steady growth. By business: 1) Due to the continuous decline in the prosperity of the steel and coal industries, the company's supermagnetic separation processing equipment business revenue fell from 203 million to 149 million, a decrease of 26.60 million. However, at the same time as the company's supermagnetic separation equipment business revenue declined, the company carefully selected customers and continued investment in new technology products, increasing the gross margin of the company's supermagnetic separation equipment business by more than 1 percentage point. 2) The revenue contribution of Jiangsu Huada University was obvious after the merger, but intense local competition caused competitive sales, resulting in a marked decline in the gross margin of the centrifuge and ancillary business (over 5 percentage points). 3) After the integration of the four environments, water operations and PPP business concentrated on contributing to performance. Looking ahead to 2017, the prosperity of the steel and coal industry is expected to bottom out and pick up, the vicious competition situation for centrifuges in Jiangsu is expected to ease, the four-way environment operation and PPP implementation will accelerate, and the company's performance is expected to achieve a high growth rate. Policies are becoming stricter and the time for inspection is approaching, and there is a possibility that the company's black and smelly river management business will exceed expectations: 1) The Ten Rules of Water Assessment requires municipalities directly under the Central Government, provincial capitals, and built-up areas of planned separate cities to basically eliminate black and smelly water bodies by the end of 2017. The deadline is now urgent. During the “13th Five-Year Plan” period, Sichuan Province is expected to invest 60 billion yuan to improve the water quality of the Minjiang River, and at the same time invest 60 to 80 billion yuan to treat 10 tributaries of the Tuojiang River. 2) As a leading enterprise in supermagnetic separation water treatment technology and one of the few listed environmental protection companies in Sichuan Province, it has continuously won bids for Beijing (30,000 m/day) and Hebei, Yangtze River Delta, and Pearl River Delta. The national market layout focusing on the Chongqing Economic Zone is in progress The total number of projects exceeds 800,000 tons/day, and the demonstration effect is obvious. In a situation where regulations are becoming stricter and inspection time is approaching, we expect that the company's black and smelly river management business may exceed expectations. The Beijing Pinggu PPP project has been launched, and it is expected to enter the Xiong'an regional business: In August 2016, the company won the bid for the emergency treatment project for the water quality improvement project for the exit section of Luhe Dongdian, Pinggu District, Beijing. The processing scale was 31,000 m3/day, and the winning bid amount was 15.79 million yuan/year. This project is the company's first PPP project to be implemented. Currently, the company tracks several PPP projects in North China and has formed strategic partnerships with many central enterprises and state-owned enterprises. It is expected that under the hot market in Xiong'an New Area, the company will enter the environmental management business field in Xiong'an New Area in the form of consortia or central enterprises receiving general contracts and companies as subcontractors. The non-public offering was completed to help accelerate growth: In December 2016, the company completed the non-public offering of shares of Sitong Environmental Support Financing, with an issue price of 32.03 yuan/share. A total of 5.439 million shares were issued to raise 174 million yuan in capital to pay part of the cash consideration of the transaction ($107 million), payment of the underlying company's investment and construction project expenses ($0.3 million), repayment of the underlying corporate bank loan ($22 million), and payment of transaction related expenses ($12 million). The issuance targets are Shanghai Dadu Asset (4.9953 million shares) and Shenwan Lingxin Fund (443,900 shares), respectively. The completion of non-public offerings to address the company's capital requirements accelerates the four-link environmental project process and helps accelerate growth. Actively extend mergers and acquisitions to create a comprehensive aquatic ecological platform: the company has expanded rapidly since its listing. It acquired 100% of Jiangsu Huada's shares in 2015 to expand the sludge industry chain; it acquired 65% of Sitong Environmental's shares in 2016 (approved by the Securities Regulatory Commission) to lay out sewage treatment operations and enhance construction qualification capabilities; and acquire 100% of Daoyuan Environmental's shares to supplement design qualifications. Open up the entire “equipment - design - engineering - operation and maintenance” industry chain and build a leading platform for comprehensive aquatic ecology protection and restoration. More PPP is worth looking forward to in the future. Profit forecast and valuation: Forecast the company's 2017-2019 EPS of 0.75, 0.87, and 1.09 yuan, corresponding to PE39, 34, and 27 times. The purchase price for the employee stock ownership plan is 31.91 yuan, and the fixed financing and stock exchange prices are 32.03 yuan and 30.25 yuan respectively. They have a certain margin of safety and maintain a “buy” rating. Risk warning: Business development falls short of expectations, acquisition and integration risks.