Incident: The company released its 2017 quarterly report and achieved revenue of 96.331 million, an increase of 32.24% over the previous year; net profit of the mother turned into a loss of -645,900 yuan. Investment points: Multiple factors dragged down Q1 performance. Judging from the previous situation, the impact on the whole year was small: Q1 Company achieved steady revenue growth, with an increase of 32.24% in the situation where the upstream coal and performance industries were less prosperous; however, due to multiple adverse factors such as declining operating margin, increased talent reserves, and a sharp increase in financial expenses brought about a consolidated four-way environment, Q1 net profit turned into a loss of -645,900 yuan. We sorted out the absolute value of net profit from Q1 in 2014-2016, which accounted for 5.56%, 8.53%, and 8.82%, respectively. Therefore, judging from the previous Q1 situation, the impact on the full-year performance was small. Expenses increased significantly as a result of the consolidation of the four channels, and the cash inflow was basically in line with the scale of revenue: in terms of expenses, the company's sales, management, and finance expenses increased by 17.99%, 58.75%, and 1080.74%, respectively. The large increase was mainly due to the merger of the four-way environment. In terms of cash flow, the cash inflow from operating activities was 100 million yuan, which is basically in line with the revenue scale (96 million). After deducting various taxes and fees related to operating activities, employee remuneration, and various taxes, the net operating cash flow in Q1 was -56 million yuan, which is basically consistent with the Q1 cash flow situation in previous years. Policies are becoming stricter and the time for inspection is approaching, and the company's black and smelly river management business may 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, while also investing 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 environmentally friendly companies in Sichuan Province, the company has continuously won bids for projects such as Beijing (30,000 m3/day) and Hebei Yanjiao (50,000 m3/day) and Hebei Yanjiao (50,000 m3/day), and has initially completed a national market layout focusing on Beijing-Tianjin-Hebei, Yangtze River Delta, Pearl River Delta and Cheng-Chongqing economic zones. The total number of projects in operation 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 PE33, 29, and 23 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.