Main points of investment:

The company publishes its 16-year annual report and 17-year quarterly report. The company achieved operating income of 171 million yuan in 2016, an increase of 23.26% over the same period last year; net profit attributable to-70 million yuan, down 5.22% from the same period last year; basic earnings per share was-0.42 yuan, and the weighted average return on net assets was-12.72%. The company plans not to pay cash dividends, no bonus shares, no provident fund to increase share capital. In the first quarter of 17 years, the company achieved revenue of 120 million, an increase of 583.55% over the same period last year, and a net profit of 17 million, an increase of 180.31% over the same period last year. The decline in performance in the past 16 years, on the one hand, due to the influence of the external operating environment, the company's coal mine safety monitoring business has dropped sharply compared with the same period last year; second, the market expansion in the field of public safety is still in its infancy, which is not enough to offset the adverse impact of the decline in performance in the coal mine sector. With the smooth progress of the intelligent animal husbandry project of Heilongjiang Hengyang Group, the performance in the first quarter of 17 years improved significantly and turned losses into profits.

"Internet of things + environmental protection", enter the township sewage treatment market. 1) in September 2015, the company took a stake of 10% to establish Chongqing Environmental Protection Fund Company, and launched the first phase of the 1 billion Chongqing Environmental Protection Industry Fund, subscribing for 100 million. The current focus of Chongqing Huantou Company is to promote township sewage treatment with PPP mode, and to achieve full coverage of sewage treatment plants in the city's established townships and withdrawing and merging towns by 2017. Through cooperation with Chongqing Huantou Company, the company has entered into the field of sewage treatment in villages and towns in Chongqing. 2) at the same time, the company invests to set up Zhicheng Cambo, which participates in Chongqing Huantou Ecology by 7%, and monitors the ecological environment. 3) in November 2015, the company carried out strategic cooperation with China Energy Saving and Environmental Protection (Jiangxi) in the areas of sewage treatment, energy consumption management, safety services and smart cities in Jiangxi Industrial Park. 4) on February 13, 2017, the consortium formed by the company and Wisdom Village won the bid for the concession project of sewage treatment and operation management of 277 administrative villages in Guantao County. The project adopts the PPP model, with a total amount of 180 million yuan, with an implementation period of 33 years, including 3 years of construction and 30 years of operation. This project is the company's first landing project in the field of township sewage treatment.

The Heilongjiang Wisdom Animal Husbandry Project is progressing smoothly, and the performance has improved and turned losses into profits in the first quarter of 2017. 1) in the past 15 years, the company has successively signed strategic cooperation agreements with founder and dawning companies to actively lay out smart cities. At present, two projects have been launched, namely, the "Smart City Management" project in Wansheng Economic Development District of Chongqing and the intelligent animal husbandry project of Heilongjiang Hengyang Group, with a sum of 20.41 million and 167 million respectively. In the smart city project, the company mainly focuses on R & D and sales layout in the field of pipe network and public safety. 2) the intelligent animal husbandry project of Heilongjiang Hengyang Group is progressing smoothly and has a positive impact on the performance in the first quarter of 17 years. The company made a net profit of 17 million yuan in the first quarter of 17 years, turning losses into profits, and lost 20.75 million yuan in the same period last year.

Profit forecast and valuation. From 2017 to 2019, the company is expected to realize the net profit of 0.70,1.15 and 166 million yuan belonging to the parent company, and the corresponding EPS is 0.42,0.69 and 0.99 yuan. With reference to the comparable company's valuation, the company was given an overweight rating of 70 times PE in 2017, corresponding to the target price of 29.4 yuan.

Risk hint. (1) the progress of the project is not as expected. (2) the transformation of the company is not up to expectations.