Key investment events: The company's revenue for the first quarter of 2017 was 96.3 million yuan, up 32% year on year, and net profit - 650,000 yuan, down 110% year on year. Our comments on this are as follows: Revenue growth in the first quarter was high, and expenses dragged down net profit. The company's revenue for the first quarter of 2017 was 96.3 million yuan, up 32% year on year, and attributable net profit - 650,000 yuan, down 110% year on year. Revenue growth was mainly due in December of last year, when 65% of Sitong Environmental's shares were settled. The company's management expenses for the first quarter of 2017 were 21.13 million yuan, up 58% year on year, and financial expenses were 3.09 million yuan, up 1080% year on year. Looking at the whole year, along with the gradual increase in revenue, the negative increase in expenses on net profit will gradually weaken. We are optimistic about the release of the company's performance after the completion of water orders and the merger and acquisition of Sitong Environmental. The acquisition of an additional 65% of Sitong Environmental's shares was completed, and the entire water treatment industry chain was laid out. 1) Municipal sewage treatment expert Sitong Environment: Sitong Environmental has a total daily sewage treatment capacity of 50,000 tons; in addition, the total daily treatment capacity of the project to be put into operation is 153,400 tons. On December 1, 2016, 65% of Sitong Environmental's shares were settled. 2) Performance situation: Profit commitment of 1,700/2500/28 million yuan from 2016 to 2018. Sitong Environmental deducted 14.47 million yuan in non-net profit in 2016, reaching 85% of the year's performance promise. According to the relevant agreement in the “Profit Compensation Agreement”, if the actual net profit for any fiscal year during the profit commitment period is less than the promised net profit for the current year, but the total cumulative actual net profit realized during the profit commitment period is not less than 70 million yuan, then the performance pledger is deemed to have fulfilled its profit promise. As a result, 2016 did not involve performance compensation situations. The main reason for not fulfilling performance commitments was due to delays in repayment of accounts receivable, which led to increased asset impairment losses; higher loan interest rates. It is expected that starting in 2017, the company will strengthen accounts receivable management, reduce the cost of Sitong Environmental loans, and increase the company's profit level. A 6 billion water framework agreement was signed, and growth momentum is sufficient. 1) The 4 billion investment framework agreement for the Gui Cooperative Special Pilot Zone: Specific projects include industrial sewage treatment plant projects (first phase treatment capacity 10,000 tons/day, second phase treatment capacity 20,000 tons/day, water recovery during phase III construction), water supply plant projects (phase I water supply capacity not less than 5,000 tons/day; phase II, daily water supply capacity not less than 30,000 to 100,000 tons/day); sewage network projects. Among them, sewage network projects use PPP model cooperation, and other projects use BOT model cooperation. 2) Chenzhou Linwu County 2 billion strategic cooperation agreement: The company and the Linwu County Government plan to establish a comprehensive and in-depth strategic partnership in the following fields: urban water systems, environmental monitoring, treatment of black and smelly water bodies, watershed remediation, sponge city construction and other infrastructure fields. It is estimated that the total investment and construction cooperation amount will reach 2 billion yuan. The 2017 equity incentive was introduced, and the exercise conditions required doubling performance within three years. The number of restricted shares to be granted under this incentive plan is 5.255 million shares, accounting for 2.83% of the company's total share capital. The total number of incentive recipients granted for the first time in this incentive plan was 164, and the grant price was 13.99 yuan/share. After 12 months from the date of grant for restricted shares granted for the first time under this plan, incentive recipients can lift the sales restrictions in three installments over the next 36 months according to the ratio of 40%, 30%, and 30%. The performance assessment target is that compared with 2016, the net profit growth rate from 2017 to 2019 was not less than 30%/70%/110%, or reach 0.90/1.18/146 million yuan. The 2:1 leveraged employee stock ownership plan completed the purchase, with an average transaction price of 31.91 yuan/share. The Nuoan Golden Lion No. 95 asset management plan is all used to invest in Huanneng Technology shares. The maximum amount raised is 10,000 yuan, and priority shares and enterprise-level shares are set according to a 2:1 ratio. The company's employee shareholding plan has raised a maximum capital of 33.33 million yuan. It will be implemented in three batches over three years to subscribe for enterprise-level shares. In September 2016, the first batch of employee stock ownership plans were purchased. The transaction amount was 29.17 million yuan, the average transaction price was 31.91 yuan/share, and the lockdown period was 12 months. In view of the fact that the company has initiated the implementation of a restricted stock incentive plan, taking into account various factors such as the capital market environment, the actual situation of the company and regulatory requirements, the company terminated the second and third employee stock ownership plans. Investment advice: Maintain an increase in holdings rating. Net profit is expected to reach 120/160 million yuan in 17-18; the total market value of the company is currently 4.6 billion yuan. The company is a pioneer in magnetic separation water treatment; the core technology is efficient and low in consumption, and has a wide range of applications. Through mergers and acquisitions of Jiangsu Huada and Sitong Environmental, the company entered the fields of sludge disposal and municipal sewage, and the entire water treatment industry chain layout. A 6 billion water framework agreement was signed, and growth momentum is sufficient. The additional purchase price is 30.25 yuan/share, the supporting fund-raising price is 32.03 yuan/share, and the employee holding price is 31.91 yuan/share, providing a strong margin of safety. Based on this, investors are recommended to pay attention! Risk warning: Industrial sewage treatment business falls short of expectations