The company's 2016 report revealed. In 2016, the company achieved operating income of 1.107 billion yuan, an increase of 29.32 percent over the same period last year, and the net profit belonging to shareholders of listed companies was 326 million yuan, an increase of 21 percent over the same period last year. The dividend plan is 1.1 yuan for every 10 shares.

Income increased steadily, gross profit margin decreased slightly, and financial expenses increased. In 2016, the operating income of Jiangnan Water reached 1.107 billion yuan, an increase of 29.32 percent over the same period last year. Of this total, tap water revenue was 497 million yuan, an increase of 4.66% over the same period last year, and engineering installation revenue was 573 million yuan, an increase of 60.72% over the same period last year. The company's comprehensive gross profit was 54.00%, down 3.76 percentage points from the same period last year. Of this total, the gross profit margin of tap water was 52.79%, down 2.83% from the same period last year; and the gross profit margin of engineering installation was 56.25%, down 4.75% from the same period last year. The company's sales expenses increased by 7.27% to 75.0081 million yuan, mainly due to the increase in employees' salaries and expenses for depreciation and repair. Management expenses decreased by 1.8% to 90.4754 million yuan, mainly due to a reduction in rental fees, business hospitality expenses and amortization of intangible assets. Financial expenses increased by 35.65% to-15.8028 million yuan, mainly due to a decrease in interest income. The company's investment income was 14.0126 million yuan, down 27.39% from the same period last year, mainly due to a decrease in long-term equity investment. Non-operating income and expenditure was 2.27 million yuan, an increase of 138.03% over the same period last year, mainly due to gains from asset disposal and an increase in government subsidies.

What to watch: the main focus in the future is to actively expand sewage treatment and solid waste business as a water leader in Jiangyin.

Jiangyin water faucet. The company is the only enterprise engaged in water supply business in Jiangyin City, and the actual controller is Jiangyin City Public assets Management Company, with a total shareholding of 58.37%. The company is currently the only state-owned listing platform in Jiangyin City. The company's tap water business has four surface water plants in Xiaowan, Xiaoshan, Chengxi and Ligang, with a total design capacity of 1.16 million tons per day. In 2016, the company supplied 269 million cubic meters of water and sold 248 million cubic meters of water, an increase of 5.33% and 4.25% respectively over the same period last year. At the same time, the municipal engineering company, a wholly-owned subsidiary, has the secondary qualification of general contracting for municipal public works construction, and is the only enterprise in Jiangyin that can independently undertake the installation and construction of large and medium-sized water pipes. Actively expand the business of sewage and solid waste. The company's sewage business is mainly carried out by the wholly-owned subsidiary Hengtong Company and the shareholding (30%) company Everbright Water (Jiangyin). Hengtong Company has jurisdiction over Nanzha and Huangtang sewage treatment plants with a scale of 35000 tons per day. Everbright Water (Jiangyin) has jurisdiction over Binjiang, Shizhuang, Chengxi and Chengxi Phase II sewage treatment plants with a scale of 190000 tons per day. In December 2015, the company set up a wholly-owned subsidiary, "Splendid Jiangnan", which is responsible for the construction of Jiangyin Qinwangshan industrial waste comprehensive utilization project (emergency line) and Jiangyin Qinwangshan industrial waste comprehensive utilization project (regular line), with a total investment of 550 million yuan. at present, it is advancing steadily.

Profit forecast and valuation. It is estimated that the net profit of the company belonging to the parent company in 2017 / 18 is 3.93 yuan and 509 million yuan, and the corresponding EPS is 0.42 yuan and 0.54 yuan respectively. With reference to the comparable company's valuation, the company was given a buy rating of 25 times PE in 2017, corresponding to the target price of 10.50 yuan.

Risk hint. (1) the progress of the company's waterworks upgrading and solid waste projects is lower than expected; (2) the price of tap water and sewage changes; (3) the cross-regional expansion of business is limited.