Incident The company released the 2016 annual report and the 2017 quarterly report, KeRong Environment released the 2016 annual report: achieved operating income of 765 million yuan, a year-on-year decrease of 23.41%, and realized net profit of 132 million yuan, a year-on-year decrease of 592.43%, which is slightly lower than the previous performance report forecast. The company achieved net profit without return to mother of 147 million yuan, a year-on-year decrease of 775.97%; EPS was 0.18 yuan/share, and ROE was 9.32%. The company's profit distribution plan is to distribute a cash dividend of 0.03 yuan (tax included) for every 10 shares. The company also released a report for the first quarter of 2017: it achieved operating income of 205 million yuan, an increase of 64.28% year on year, and realized net profit of 26.29 million yuan, an increase of 265.40% year on year, in line with previous performance forecast expectations. The company achieved net profit of 2.58 million yuan without return to mother, an increase of 112.24% over the previous year; EPS was 0.037 yuan/share, and ROE was 1.96%. Brief review Clean combustion and flue gas treatment competition was fierce. Order reduction and revenue confirmation was delayed in 2016. The company's revenue declined compared to last year. Among them, the clean combustion and boiler energy efficiency sector achieved revenue of 220 million yuan, a year-on-year decrease of 46.69%, mainly due to a sharp decrease in the company's boiler orders; second, the flue gas treatment sector achieved revenue of 401 million yuan, a year-on-year decrease of 11.47%, mainly due to the subsidiary Blue Sky Environmental Protection's reporting period. Some projects have a long construction period and have not yet reached the revenue recognition point. In addition, due to intense competition in the clean combustion and flue gas treatment business, order acquisition costs increased, and ongoing project costs were not effectively controlled. As a result, the gross margins of the two main businesses fell by 27.40 and 2.47 percentage points, respectively. Expense rate increase plus accrual impairment during the 2016 performance reporting period, the company's sales expenses were 36.24 million yuan, accounting for 4.74% of revenue, up 0.70 percentage points year on year; financial expenses of 20.68 million yuan, accounting for 2.70% of revenue, up 1.13 percentage points year on year, mainly because interest expenses of the subsidiary Zhucheng Baoyuan were no longer capitalized; management expenses of 127 million yuan, accounting for 16.61% of revenue, up 4.83 percentage points year on year, mainly due to increased employee remuneration and increased investment in R&D in ultra-low nitrogen industrial burners, The impact of projects such as high-temperature heat collection, long-term heat storage, and VOCs pollution prevention and control. Furthermore, the company's accounts receivable age increased in 2016, leading to a year-on-year increase in accrued asset impairment losses. In addition, the subsidiary's Wuhan fuel control orders declined, and the current period lost 2014 million yuan, which calculated goodwill impairment preparations, which affected the company's net profit level back to mother. The results of strengthened management have been remarkable. The improvement in the company's operations in 2017 is obvious. Since Tianjin Fengli, a subsidiary of Fengli Wealth, took over the financial environment in June 2016, drastic reforms have been made to the company's business development and capital operation, which can be seen from cash flow alone. The net cash flow from operating activities in 2016 was 243 million yuan, an increase of 364 million yuan over the previous year. The main reason was that the company increased its collection of accounts receivable this year, and the second was the increase in government subsidies received this year. The net cash flow from investment activities was 249 million yuan, mainly due to the withdrawal of the previous year's investment and wealth management products this year and the reduction in spending on wealth management products. As a result, in the first quarter of 2017, the company continued the trend of operational improvement. In addition to achieving strong production and sales (Blue Sky environmental protection orders confirmed revenue according to schedule, sales orders for energy-saving ignition and low-nitrogen burners increased year-on-year), it also optimized its capital structure, reduced short-term liabilities, and saw a sharp drop in financial expenses over the same period last year. In addition, non-recurring profit and loss for the first quarter was 23.71 million yuan, of which 27.42 million yuan was non-current asset disposal profit and loss, mainly due to the company revitalizing its assets and disposing of rental properties; the company continued to strengthen the collection of accounts receivable, increasing repayments and reducing preparations for bad debts. Set up an industrial investment fund of 2 billion yuan to nurture new environmental growth. The company recently signed a strategic cooperation framework agreement with Shenzhen Qianhai Qinzhi International Capital Management Co., Ltd. to jointly initiate the establishment of an industrial investment fund and tentatively decide on the “Qinzhi Finance Investment Partnership (Limited Partnership)”, with a total scale of no more than 2 billion yuan, with an initial phase of 1 billion yuan. The investment direction is environmental protection related fields such as flue gas exhaust gas treatment, water conservancy and water environment treatment, ecological environment treatment, and solid waste environment treatment. Qinzhi Capital is a professional investment institution with state-owned shares and market-based operations. We believe that the company will rely on Qinzhi Capital's professional investment capabilities, actively deploy upstream and downstream in fields related to the environmental protection industry, and integrate internal and external resources through industrial investment methods. The actual controller and executives have increased their premium holdings, demonstrating firm confidence in future development. Recently, the company's actual controller and chairman, Ms. Mao Fengli, and the company's directors, supervisors and senior management (management team) announced that they intend to increase their holdings of the company through the Shenzhen Stock Exchange trading system within 12 months. The lower limit of the planned increase amount is 100 million yuan, and the upper limit is 1 billion yuan. This time, the actual controller and executive team intend to use their own or self-raised capital to increase their holdings at the price limit of 15 yuan/share. Compared with the company's latest closing price of 9.16 yuan/share, the increase in holdings is almost obvious, fully demonstrating the company's long-term optimism about the environmental protection industry and their firm confidence in future sustainable development. After completion, the control over the company's business development will be further strengthened. Furthermore, the directors and supervisors of the companies participating in the plan to increase their holdings promised not to reduce their holdings within 6 months. Maintaining the purchase rating, we are optimistic about the growth potential of the company's flue gas treatment and water treatment business, and look forward to increased performance due to new business developments. Since Fengli Capital joined the company, it has optimized the company's operations at multiple levels, including business management and capital operation. In addition, the first phase of the company's equity incentive plan has been granted. The incentives include a total of 182 people, including directors, senior management, and core technical (business) personnel. The net profit in the exercise conditions has increased dramatically over the same period last year, which indicates that the company will usher in leaps and bounds. We slightly raised the company's profit forecast. We expect to achieve net profit of 163 million yuan and 204 million yuan in 2017 and 2018, respectively, corresponding to EPS of 0.23 yuan and 0.29 yuan, maintaining the purchase rating.