Incident Company Releases 2016 Annual Report The Company announced 2016 Annual Report. It achieved operating income of 1,010 billion yuan for the full year of 2016, an increase of 19.74% over the previous year; realized net profit of 33.44 million yuan, a year-on-year increase of 226.25%; and realized net profit after deduction of 640,000 yuan, a year-on-year decrease of 103.60%. The company released the 2017 quarterly report and the company also released the 2017 first quarter report. In the first quarter of this year, the company achieved operating income of 177 million yuan, an increase of 62.06 percent over the previous year, and realized net profit of 7.57 million yuan, a sharp decrease of 864.75 percent over the previous year. Brief review of the increase in ongoing orders, which contributed to rapid growth in performance, the company's annual report shows that it achieved operating income of 1,010 billion yuan for the full year of 2016, an increase of 19.74% over the previous year, and realized net profit of 334.357 million yuan, an increase of 226.25% over the previous year, falling short of expectations. The net cash flow from the company's operating activities in 2016 was 593 million yuan, a year-on-year decrease of 504.82%. The main reason was the increase in project payments and the increase in bid security payments in 2016 as the construction business volume increased. This also proves from another perspective that the company currently has a large number of ongoing engineering orders to support future performance. The company's main performance comes from engineering construction business. The construction business has special characteristics during the implementation process. The company needs to advance corresponding amounts such as bid security deposits, performance guarantee guarantees, and project turnover funds in stages, but when settling and receiving business payments, it is necessary to make installment settlements and installment payments to the owner units according to the specific progress of the project. Project revenue increased sharply, and sapling sales declined slightly. In 2016, the company was in the strategic transformation stage. There were no major changes in the composition of the company's main business. Revenue mainly came from greening project construction and municipal engineering construction business. Among them, the company's greening project construction business was still the key driver of performance, accounting for 97.77% of revenue, an increase of 0.33 percentage points over the previous year. Specifically, in 2016, the company's greening project construction revenue was 987 million yuan, an increase of 20.13% over the previous year, and a gross profit margin of 28.69%. It can be seen that the company actively promoted the audit and settlement of historical projects and increased the collection of project payments, with remarkable results. The company's seedling sales revenue was about 12.993 million yuan, down 14.03% year on year; seedling rental revenue was 724,000 yuan, up 30.36% year on year. Revenue costs in the first quarter increased at the same time, and the expected performance for the first half of the year declined. The company achieved operating income of 177 million yuan in the first quarter of 2017, an increase of 62.06% year on year, mainly due to an increase in confirmed revenue from engineering business during the current period; operating costs increased 101.60% year on year, mainly due to an increase in revenue in the first quarter and a simultaneous increase in costs; and cash flow from operating activities increased 107.36% year on year, mainly due to an increase in project payments recovered in the first quarter. In the first quarter, the company achieved net profit of 7.57 million yuan, a sharp decrease of 864.75 percent over the previous year. The company expects the net profit range of 5 to 10 million yuan for the first half of 2017, with a range of -80.11% to -60.22%. The main reasons for the sharp decline in the company's expected performance are: 1) the increase in the scale of business and the increase in loan amounts, leading to an increase in financial expenses; 2) the year-on-year increase in preparations for bad debts against accounts receivable; and 3) the increase in taxes and surcharges compared to the same period last year. Sales expenses increased, and management cost control results were significant. The company's sales expenses in the first half of 2016 were 25.75 million yuan, up 69.10% year on year, accounting for 5.50% of revenue, up 1 percentage point year on year, mainly due to increased sales expenses due to increased engineering business revenue; management expenses of 34.58 million yuan, up 1.31 percent year on year, accounting for 7.40 percent of revenue, down 2.6 percentage points year on year, mainly due to the company's strengthened cost control and reduced management costs; Financial expenses of 30.06 million yuan, up 27.85 percent year on year, accounting for revenue 6.4%, accounting for a decrease of 0.5 percentage points over the same period last year. Continuously winning large orders has had a positive impact on performance. Since 2016, the company has continuously won major projects to support future performance. In May 2016, the company won the bid for the 235 million yuan logistics park project in Pu'er City, and the net profit margin of the project will reach about 15%-20%, which is higher than that of ordinary projects; in August 2016, it won the bid for the sponge city PPP project in Renli Ancient Town, Suining City, with a total amount of 1.32 billion yuan. It is the first project outside the province and the company's first sponge city-related order company; in December 2016, the company signed a financing agreement with the Chuxiong Economic Development Zone Management Committee. It will be responsible for the construction of three projects, with a total investment of 718 million yuan; in April 2017, the company and Yunnan Yunshengda, Yunnan, China. The Institute of Architectural Design and Research of Tongji University jointly won the bid for the “Baoshan Yongchang Road (Dabao Expressway-East Ring Road) Road Project”, with a bid price of 710 million yuan. Generally speaking, the company has increased its market expansion efforts, business scale has increased, project gross margin is better than expected, and at the same time provides good support for future performance. The two-wheel drive of watershed management+sponge city continues to be optimistic in the medium to long term. While traditional engineering business is developing steadily, the company is also following a number of watershed management projects. It is expected that it will start with planning and planning, and then gradually implement it. The company's main business, municipal gardens, has a certain advantage in connecting with the sponge city business, so the company is currently also actively tracking projects and entering the PPP market. We believe that the successful completion of this additional issue will play an important role in promoting the transformation and upgrading of the company's business. Expanded expansion has begun. Accelerating the transformation into a large environmental protection platform company announced that it plans to invest 5 million yuan and Shanghai Yindu Industrial (Group) Co., Ltd. to establish a cloud investment fund management company, and plans to invest 100 million yuan with Yindu Industrial to jointly initiate the establishment of the Yunnan Yuntou Ecological and Environmental Protection Industry M&A Fund. The total scale is not more than 2 billion yuan, of which the first phase of the fund will raise a target scale of 1 billion yuan. The company's establishment of an environmental protection industry merger and acquisition fund indicates that its epitaxial expansion ideas are clear, which helps the company accelerate the integration of high-quality ecological and environmental protection resources, serve the company's epitaxial development, form a two-wheel drive with the growth of the main business, and accelerate the company's transformation into a major environmental protection platform in Yunnan Province. We expect that the company's preferred target for mergers and acquisitions in the future will be the resources of the Planning and Design Institute to make up for the company's shortcomings in watershed management and sponge city projects. Maintaining that the buy-rating company relies on state-owned shareholders has a great advantage in the execution of regional orders in the Yunnan region. At the same time, it has already accumulated a number of on-hand orders, providing reliable support for performance growth, and waiting for performance to enter a rapid upward channel. We expect the company's net profit in 2017 and 2018 to be 119 million yuan and 190 million yuan. Considering the additional dilution of EPS corresponding to 0.42 and 0.66 yuan, the purchase rating will be maintained.