Incident: The company used 59 million dollars in cash to jointly invest in Huitong Environmental Protection with 5 natural persons including Yang Changli. The company's shareholding ratio was 40.69%. Investment points: The extension strategy is progressing in an orderly manner, and the target of the acquisition is “small but beautiful”: According to the announcement, natural persons Yang Changli, Wang Fumei, Zhao Yongyi, and Zhang Bingxin invested with their green environmental shares. After the share transfer was completed, Green Environmental Protection became a wholly-owned subsidiary of Huitong Environmental Protection. 1) A long history of green environmental protection and comprehensive business layout. According to the official website of Green Environmental Protection, the company was founded in 1992 and is mainly engaged in R&D, manufacturing and general engineering contracting of various water treatment processes and equipment, waste gas treatment processes and equipment, and is a key enterprise in the environmental protection industry in Guizhou Province. At present, the company has extensive technical reserves and a comprehensive business layout. The products and services cover the treatment of domestic drinking water, industrial water, and high turbidity water; desulfurization, denitrification, ammonia removal, dust removal and recycling of various waste gases; in-situ pollution control and soilless rapid ecological restoration in mines and depots; and centralized and efficient composite four-season artificial wetland ecological treatment. 2) After the acquisition was completed, the synergy effect with Southern Huitong was evident. According to our analysis, the synergy between Green Environmental Protection and Southern Huitong mainly comes from three aspects: First, at the resource level. Although Green Environmental Protection has a comprehensive business layout, it is constrained by the resources of private enterprises, and the scale of revenue and net profit has grown slowly (2016 revenue was 29.89 million yuan, net profit was 220,000 yuan). After the acquisition is completed, it is expected that Southern Huitong's state-owned enterprise background and platform resources will be used to achieve rapid expansion in business scale. Second, at the industrial chain level, the green environmental protection business focuses on industrial water treatment and difficult sewage treatment, while Southern Huitong, as a leading RO membrane company in China, has rich technical reserves and project resources in the field of membrane water treatment. With strong cooperation in the future, the two sides are expected to achieve collaboration in all aspects from membrane materials to membrane engineering, from projects to customers. Third, at the strategic level, Southern Huitong has been in overseas markets for a long time. Currently, some membrane products have been exported to Europe, North America and Southeast Asia; while Green Environmental Protection also has rich experience in overseas water treatment projects, and implementation projects cover many countries such as India, Indonesia, Vietnam, Laos, etc. In the future, under the rapid advancement of the “Belt and Road” strategy, it is expected that the overseas business layout of the two sides will be fully integrated. Participation does not hold shares, leaving plenty of room for subsequent operations: according to the announcement, the company's shareholding ratio in Huitong Environmental Protection is 40.69%, and there is no controlling interest (the actual controller Yang Changli and his co-actors have a total shareholding ratio of 42.36%). Another partner Tu Gang's 14.5 million investment capital (corresponding share ratio is 10%) can be raised within 6 years. Our analysis believes that currently, for companies, this method of participating in shares without holding shares provides more flexible disposal methods, so that the company can advance or retreat. In the future, after increasing the scale of Huitong Environmental Protection through synergies, it is not ruled out that the company will further increase capital or increase its holdings in Huitong Environmental Protection to achieve control. Concerted Actors Show Confidence: On May 16, 2017, the company announced that the majority shareholder, CRIC Guiyang, a concerted actor, increased its holdings of the company by 1%, and will continue to increase its holdings to 2% at a price of no more than 18 yuan/share in the future (2% is the maximum number of shares the majority shareholders and concerted actors can hold within 12 months), fully demonstrating confidence in the company's future development. Profit forecast and valuation: The company expects EPS of 0.32, 0.43, and 0.58 yuan in 2017-2019, corresponding to PE 44, 32, and 24 times to maintain the “buy” rating. Risk warning: Product sales fall short of market expectations, and release of new production capacity falls short of expectations.