Main points of investment:

The main business is desulphurization, denitrification and dust removal engineering and operation, which dragged down the company's overall performance in 2016 due to the downturn of the electricity market. The company is the only environmental protection listed platform company under the State Power Investment Group, with a stake of 43.74%. The company's main customers are thermal power enterprises, and its main business is desulphurization, denitrification and dust removal engineering and franchise business, accounting for 87.63% of revenue in 2016. affected by the decline in the total amount of engineering business caused by the reduction of new thermal power projects and the decline in the number of hours of utilization caused by the decline in the power market, revenue from engineering and operating services decreased by 1.14% and 1.05% respectively compared with the same period last year, coupled with a sharp decline in revenue due to overcapacity of denitrification catalysts. The company's overall operating income fell 7.77% from the same period last year to 3.261 billion yuan. The net profit of homing is 152 million yuan, down 47.12% from the same period last year, on the one hand, the revenue is lower than that of last year, on the other hand, the more direct reason is the investment income from the reduction of Southwest Securities stocks in the same period last year. If you exclude the influence of this factor, the net profit of homing decreased by 6.69% compared with the same period last year, which is basically in line with the decline in income.

We will actively carry out industrial restructuring and strive to create an industrial platform for energy conservation and environmental protection. The company has sufficient and mature engineering service experience, by the end of 2016, completed the environmental protection equipment engineering capacity of 157 million kilowatts, has signed a cumulative contract for desulphurization, denitrification and dust removal EPC project installed capacity of more than 210 million kilowatts, and has engineering operations in India, Pakistan, Turkey, Vietnam and other four countries; desulphurization and denitrification has achieved large-scale operation, with a total installed capacity of 30.98 million kilowatts, ranking in the forefront of the five major power generation groups.

On the basis of the solid performance provided by the traditional business, the company also relies on the advantages of the parent company in the field of nuclear power, actively expand the nuclear environmental protection business, and basically complete the commissioning of the off-reactor waste disposal Project (SRTF) of Shandong Haiyang Nuclear Power Station. The company has initially possessed the capability of nuclear environmental protection services, and has become one of the only three enterprises with medium and low level nuclear waste treatment licenses in China. In 2016, the bid was won for Shandong Haiyang Nuclear Power Phase I Project decontamination system Design and Technical Service Project, China Nuclear Group Qinshan area solid waste treatment Project, Tianwan Nuclear Power Station solid waste temporary Storage Project Design Project, to further expand the scale of nuclear waste disposal orders. in the future, with the help of the industry influence of State Power Investment in the nuclear power field, the company is expected to obtain more nuclear environmental protection orders and strengthen its nuclear environmental protection business. In addition, the company has also begun its preliminary layout in the fields of distributed energy, soil remediation and ecological civilization construction, realizing the first distributed photovoltaic project connected to the grid in 2016, and won the bid for the distributed energy project of Chongqing Yongchuan District people's Hospital, and the distributed energy business is expected to expand. The company's environmental protection engineering company has won the "Class A qualification for soil pollution Control" and successfully won the bid for the Shaoyang project, which is expected to make a deep breakthrough in the field of environmental protection. The company also signed a framework agreement with Beijing Ecological Technology Research Institute of Zhongzi Group to carry out research on the construction plan of ecological civilization demonstration zone in relevant regions of Chongqing, so as to enter the field of ecological civilization city construction. the building of the company's energy-saving and environmental protection industry platform has begun to take shape.

Water treatment business is expected to become a new performance growth point of the company. At present, about 40% of China's industrial water is used in coal-fired power plants, and emissions account for 10% of the total industrial emissions. Under the background of energy saving and emission reduction, "zero discharge of waste water" has become the inevitable choice of coal-fired power plants. Desulphurization wastewater is the key to achieve zero discharge. At present, the company has mastered the whole process technology and construction management capability of "raw water pretreatment-boiler make-up water treatment, process water treatment-waste water treatment and reuse" in the power plant, and successfully established the "water island" project model. at present, it has 5 investment items for sewage treatment and reclaimed water reuse, with a treatment scale of 250000 tons per day, mainly in power plant water treatment business. Through active research and development, the company has developed two waste water "zero discharge" technical routes of MVR evaporation crystallization and flue gas waste heat evaporation, and has signed a strategic cooperation agreement with Arquette International Company of the United States, which is the world's leading technology and performance in the wastewater zero discharge industry, which is expected to achieve further technological breakthroughs in this field and seize the power plant water treatment market. In the future, with the increasing maturity of the company's water treatment technology, we believe that it is also possible for the company to expand its water business from electric power to the municipal field, and sign a letter of intent with the Beipiao municipal government to invest in a daily sewage treatment project of 100000 tons. It shows that the company has begun to make a layout.

The company is the only listed environmental protection platform company under the State Power Investment Company, which has been deeply cultivated in the field of atmospheric control and power plant water treatment for many years, and is one of the three domestic enterprises qualified for the treatment of low-and medium-level nuclear waste. It has strong core competitiveness in the field of environmental protection. Distributed energy + soil remediation + ecological civilization city construction provides the future development path for the company. The emerging industry has a large space and is expected to become a new profit growth point for the company. We estimate that the company's EPS will be 0.21,0.26,0.32 yuan per share respectively from 2017 to 2019, and the previous share price PE will be 57.36,47.09,37.46 times.

Risk hints: the risk of a sustained macroeconomic downturn; the risk of a decline in the electricity market; the risk that the progress of new business is not as expected; and the risk of safety accidents in nuclear waste disposal.