Incident: The company released its report for the first quarter of 2017, and the performance was in line with expectations. During the reporting period, the company's revenue and net profit were 248 million yuan and 33 million yuan respectively, up 4.13% and 10.68% year on year. EPS was 0.08 yuan/share, in line with expectations. Key investment points: Revenue has increased steadily, the shareholding ratio of subsidiaries has increased, minority shareholders' profit and loss have been reduced, demolition and carry-over has been completed, non-operating expenses have declined, and the company's performance has steadily increased. During the reporting period, the company's revenue grew steadily by 4.13%; the profit level was stable, and the gross profit margin was 44.66%. The increase in net profit was mainly due to the acquisition of shares in two subsidiaries of Times Wharton and Nature in 2016. Minority shareholders' profit and loss decreased by 7.24 million, a year-on-year decrease of 83.50%. At the same time, demolition and construction projects were completed, demolition losses were carried over, and non-operating expenses were reduced by 2.77 million compared to the same period last year, a decrease of 81.69%. Net profit of Yuimu increased 10.67% year on year, compared to an increase in revenue growth. However, in order to expand the scale of the business and start production of new production capacity, expenses increased during this period. Among them, management expenses increased by 5.6 million in absolute terms, financial expenses increased by 1.97 million, government subsidies decreased, and non-operating income decreased by 1.85 million over the same period last year. Wholly-owned Times Wharton is ready for later production capacity increases and sector business development. By the end of 2016, the company acquired the remaining shares in Time Wharton in cash. At the same time, nature's shareholding ratio was increased to 56.44%. The new RO membrane base was successfully put into operation, and production capacity will continue to increase in the future. The company's RO membrane production capacity was about 8 million square meters in 2015, and two new film production lines were built at the Chavin base at the end of 2015, with 6 million square meters of RO film and 3 million square meters of ultrafiltration membrane. Now, it has achieved partial production and partial trial production. Membrane technology is the main direction of water treatment. Currently, nanofiltration membranes and plate ultrafiltration membranes are still mainly imported. The company expects to increase sales volume through cost advantages in the future, so it has invested 260 million yuan to build 4.8 million square meters of nanofiltration membranes and 1 million square meters of plate ultrafiltration membrane production lines. The construction period is two years. Production is expected to reach production in 2020, and the company's production capacity will increase further at that time. Emphasis is placed on internal and external extension to gradually achieve the company's strategic goal of extending to the vertical and horizontal fields of water treatment. The company's strategic positioning is clear. While ensuring endogenous growth, it will accelerate the pace of epitaxial expansion, mainly including: upstream membrane materials; downstream water treatment projects, especially special sewage treatment with a high technical threshold, or downstream projects that pave the way for the development of the special membrane product market; and water operation assets with good cash flow, low collection risk, and technical threshold. In addition, the hazardous waste sector is also an area that the company is optimistic about and is actively searching for targets. After the company's shares were transferred to CRIC, the decision-making chain was shortened, which greatly helped the external M&A strategy. Furthermore, CRIC Industrial Investment provided the company with a low interest rate of less than 3%, which would further benefit the company's development. Sign a PE outsourcing agreement to speed up the pace of extended mergers and acquisitions. The company signed a “Financial Advisory Cooperation Agreement” with Yuhua on March 30, 2017, agreeing that it will provide the company with no less than 10 target companies that meet the relevant conditions for environmentally friendly water treatment every year, including no less than 4 target companies with revenue of 500 million yuan or more. It will help improve the efficiency of searching for mergers and acquisitions projects, accelerate the pace of extended mergers and acquisitions, and is in line with the company's overall development strategy. Investment rating and valuation: Considering the progress of production capacity construction and commissioning, and the growth rate of downstream demand, we maintained that the company's net profit in 17-19 was 1.29, 1.71, and 215 million yuan, respectively, and corresponding earnings per share of 0.31, 0.41, and 0.51 yuan/share, respectively. The current stock price corresponding to 17-year PE is 46 times, maintaining the “increase in holdings” rating, and looking forward to the company's extended expansion and implementation.