Main points of investment

Events: 1) the company's net profit in 2016 and the first quarter of 2017 was-6990 yuan and 16.66 million yuan respectively, up-5% and 180% over the same period last year. 2) Chairman Ma promised to increase his stake in the company by 1.5% to 1.86% within 12 months. 3) to appoint a new general manager, responsible person of finance and representative of securities affairs.

Our comments on this are as follows:

A substantial turnaround in the first quarter of 2017, reflecting the company's strong ability to take orders and execute. 1) the business structure has improved in 2016, and the Internet of things + business has been transformed rapidly. In 2015, the company's revenue was 170 million yuan, up 23% from the same period last year, and its net profit was-69.9 million yuan, down 5% from the same period last year. From the perspective of income structure, the income of coal mine safety products was 60.17 million yuan, down 37%, and the gross profit margin was 46%; the revenue of public safety monitoring products was 52.81 million yuan, up 25%, and the gross profit margin was 22%; and the smart city monitoring products were 57.78 million yuan, with a gross profit margin of 42% for the first time. The company's revenue from public safety products increased significantly in 2016, and smart city products were sold for the first time, reflecting the rapid transformation of the company's Internet of things + business. 2) won the bid for Wisdom Animal Husbandry in December last year, and quickly realized the results in the first quarter. In December 2016, the company won the bid for the intelligent animal husbandry project of Heilongjiang Hengyang Group, with a contract performance period from December 2016 to December 2019. The total contract amount is 167 million yuan, including 45.91 million yuan for equipment purchase, 41.09 million yuan for intelligent monitoring system, and 80 million yuan for application system construction and software development.

In the first quarter of 2017, the company's revenue was 120 million yuan, an increase of 583% over the same period last year, and the net profit was 16.66 million yuan, an increase of 180% over the same period last year. This is mainly due to the confirmation of the revenue from the project of Nehe Wisdom Animal Husbandry Development Co., Ltd. 3) Coal prices have bottomed out and coal mine safety business will pick up sharply this year. From the historical data, the price of coal is one year ahead of fixed asset investment. After falling continuously from 2012 to 2015, coal prices began to rebound in mid-2016, and fixed asset investment in the industry is expected to pick up. Mayanson is the leader in the field of coal mine safety, with a market share of nearly 10%. Since the fourth quarter of 2016, the coal mining industry has shown obvious signs of recovery, both business contacts and sales orders have increased significantly, and sales of this product line are expected to increase significantly in 2017.

Chairman Ma increased his stake in the company by 1.5% to 1.86% within 12 months, showing firm confidence. General Manager Ma, the company's controller and chairman, plans to increase his stake in the company by 1.5% to 1.86% within 12 months from April 28, 2017, based on his confidence in the company's future development prospects. At the same time, Mr. Ma promised not to reduce the company's shares during the period of the increase and within 6 months after the completion of the increase.

Appoint a new professional management team to strengthen the management system. The company employs Zhou Hehua, ran Huazhou and Lin Jian as the new general manager, financial responsible person and securities affairs representative respectively. Zhou Hehua was born in July 1966 and has served as director, deputy general manager, chief financial officer and secretary of the board of directors of 600499.SH, chairman of Guangdong Xincheng Financial Leasing, Chairman of Anhui Xincheng Financial Leasing, and Chairman of Xincheng International. Ran Huazhou, born in September 1981, served as auditor of Shenzhen Dahua Guangzhou Institute, financial director and financial manager of 600499.SH, and joined the company in February 2017 as Chief Financial Officer. The new management team of the company are all elite talents of domestic industry and China Finance Online Co Ltd. The strengthening of the company's management system is conducive to the rapid development of new and old business.

Policy inflection point + mode inflection point, 700 billion rural sewage market opened during the 13th five-year Plan. 1) Rural sewage industry: the treatment rate was only 11% in 2015, and the overall market size was 700 billion. Rural sewage is the main source of sewage discharge, with 48 per cent of chemical oxygen demand and 32 per cent of ammonia nitrogen emitted in 2014. In 2015, the sewage treatment rate in rural areas was only 11%, much lower than that in cities and counties. According to the results of expert feedback and our calculations, it is estimated that the overall rural sewage market space is more than 700 billion yuan, and the market size is nearly 60 billion yuan in 2020. 2) Policy inflection point: under the background of beautiful countryside, the government funds ensure that the rural sewage treatment has entered the stage of rapid implementation. In July 2013, Xi Jinping proposed beautiful rural construction for the first time, and since then, rural environmental protection policies have been introduced one after another; with the high rate of urban sewage treatment, the national environmental protection policy began to transfer to villages and towns and rural areas. By the Central Office to promote rural environmental governance, at present, many ministries and commissions have jointly issued rural sewage policy documents, which has greatly improved the management system. Recently, rural sewage treatment in Hunan, Hebei, Beijing and other parts of the country has entered a stage of rapid implementation. 3) Mode inflection point:

The cost of traditional centralized processing method is too high, and enterprises such as Mayanson greatly reduce operating costs through distributed technological innovation. The traditional centralized urban sewage treatment is difficult to adapt to rural sewage treatment, the pipe network investment is too high, and the operating cost of some projects is as high as 70.8 yuan / ton. With the progress of technology, the distributed treatment method makes rural sewage treatment feasible.

Signed the 180 million PPP order and Baoding framework agreement, Mayansen officially entered the Hebei rural sewage treatment market.

1) 180 million PPP order: in April 2017, Meanson announced that it officially won the bid of 180 million yuan for Hebei rural sewage PPP bill. The consortium formed by the company and Wisdom Rural Technology Co., Ltd. is the pre-winning unit of the rural sewage treatment project in Guantao County, Hebei Province. The project involves sewage treatment in 277 administrative villages in four towns and four townships with a contract amount of 180 million yuan and a project operation period of 30 years. 2) signing Baoding rural sewage framework agreement: the company signed a strategic cooperation framework agreement with Guoxing Investment, an investment and financing platform under Baoding City Investment Company, to make use of the investment advantages of Guoxing Investment in Baoding area to jointly develop the sewage treatment market in Baoding area. The company has business layout in many places throughout the country, and we look forward to more blossoms of rural sewage business.

Investment advice: to maintain the overweight rating, it is recommended to focus on! We predict that the net profit attributable to the company for 16-18 years will reach-0.66 pound 151.23 billion, with a total market capitalization of 4.3 billion yuan at present. 1) Chairman Ma increased his stake in the company by 1.5% to 1.86% within 12 months, showing firm confidence. 2) the company signed 180 million PPP and Baoding framework agreement to formally enter the Hebei rural sewage treatment blue sea market; the company adopts leading low-cost and efficient biotechnology and looks forward to more blossoms all over the country. 3) the company won the bid for 170 million intelligent animal husbandry in December 2016, and quickly realized its performance in the first quarter of 2017, reflecting the company's strong order taking and execution ability. 4) the company started with coal mine safety products. At present, coal prices have bottomed out and investment in fixed assets in the industry is expected to rise. It is suggested to pay attention to it!

Risk hint: the progress of new business development is lower than expected