Guide to this report: After the company's investment in Huitong Environmental Protection obtained the project qualification, it marks that the industrial chain extension strategy has entered a period of implementation. It is expected that it will quickly enter engineering service markets such as overseas desalination, domestic reclaimed water treatment, and industrial desalinated water treatment, etc., to improve performance elasticity. Incident: The company announced this evening that it has jointly signed the “Guizhou Huitong Green Environmental Protection Technology Co., Ltd.” with Yang Changli, Wang Fumei, Zhao Yongyi, Zhang Bingxin, and Tu Gang. The company used 59 million yuan in cash to jointly invest in Huitong Environmental Protection with all parties mentioned above. The company accounted for 40.69% of Huitong Environmental Protection's investment. Comment: Under the request of the State Assets Administration Commission to reduce the number of legal entities, the current shareholding plan is the company's best choice for extending the industrial chain. It is hoped that in the future, the company and Tu Gang will take the opportunity to hold shares: the company and Tu Gang invested in cash, while the rest of them have invested in green environmental protection shares to jointly establish Huitong Environmental Protection. Among them, Yang Changli and Wang Fumei are consistent actors in the relationship between husband and wife, with a total shareholding ratio of 42.36%, and the actual controller; Southern Huitong holds 40.69% of the shares, and although it is the company's largest shareholder, it has not achieved control. Mainly because the State Assets Administration Commission recently tightened regulatory requirements for central enterprises to reduce the number of legal entities, this shareholding plan is the best choice for the company to rapidly expand its industrial chain. In the future, it is not ruled out that the company will seek suitable opportunities to increase its holdings of shares. Green Environmental Protection is a mature integrated water treatment service provider, which is expected to help Southern Huitong quickly enter the engineering service market: the company was founded in 1992 and is mainly engaged in R&D, manufacturing and general engineering contracting of various water treatment and exhaust gas treatment processes and equipment, serving various water treatment industries of domestic drinking water, domestic sewage, industrial water, and high turbidity water treatment. The mature cases cover various industries such as steel, chemicals, and alumina at home and abroad. In 2016, Green Environmental Protection achieved revenue of 29.89 million yuan, net profit of 217,700 yuan, total assets of 28.82 million yuan, and net assets of 11.9 million yuan. After the company invests in Huitong Environmental Protection and obtains construction capabilities, it is expected that it will quickly enter engineering service markets such as overseas seawater desalination, domestic reclaimed water treatment, and industrial desalinated water treatment, etc., which can improve performance elasticity very clearly. The industrial chain extends downstream and changes from core component suppliers to integrated service providers: this investment in Huitong Environmental Protection is representative. The company is the only enterprise with mature capacity to mass-produce RO membranes in China. Its position as a core component supplier in the high-end water treatment industry is very stable, and it is extremely sticky to downstream customers. There is an urgent need to accelerate the technology monetization process through the extension of the industrial chain and improve performance volume. After obtaining engineering and construction capabilities this time, it marks that the industrial chain extension strategy has entered a period of implementation, and performance elasticity is beginning to show. Looking forward to the future, in addition to investing in Huitong Environmental Protection and laying out downstream engineering businesses such as water treatment and desalination, the company is also trying to develop the water purifier market and enter the To-C end; try to expand application scenarios for polyether sulfone coating technology, enter new markets such as pharmaceuticals and electronics, and shift from a core component supplier to a comprehensive service provider. Investment rating: The company is expected to achieve net profit of 182 million yuan and 251 million yuan from '17 to 18, with corresponding price-earnings ratios of 33 times and 24 times. This profit forecast data only takes into account endogenous development, and there is a high probability that subsequent epitaxial development will exceed expectations. Maintain the target price of 19.42 yuan and maintain the “increase in holdings” rating. Risk warning: Competition in the high-end water treatment industry is intensifying.