Events:

The company recently announced that it won the bid for Binjiang Road Road Pipe Network, Greening Project and Jiuzhou Tacheng Green Space Project of Binjiang Road in Yibin City, with a construction investment of 767 million yuan. At the same time, at the end of 2016, we signed with the Government Procurement Center of Cuiping District, Yibin City, the municipal infrastructure of blocks D and E of waterfront cultural characteristics in Yibin City, the comprehensive management corridor and the relocation of Minjiang Road Primary School in Cuiping District, with an estimated investment of 660 million yuan.

Main points of investment:

PPP orders more than 3.7 billion yuan, is expected to become one of the company's future performance growth points. The two PPP projects in Yibin City, which won the bid announced by the company, are mainly concentrated in the fields related to the sponge city, such as ecological construction and underground pipe corridors, with a total construction amount of 1.427 billion yuan. In addition, the total investment of the PPP project of the first phase of the ecological demonstration zone in the eastern part of Zigong City signed in March 2016 is 2.316 billion yuan, currently the company's PPP orders have reached 3.743 billion yuan, exceeding the business income level for the whole year 2015. If it is conservatively estimated according to the annualized 6% PPP rate of return, it is estimated that the average annual income of PPP alone will reach about 200 million yuan from 2018. In the future, the company is expected to make use of the advantages of regional resources and the layout of existing projects and waste power generation projects to continue the expansion of PPP projects and become a new profit growth point of the company.

Hengli Shengtai, which can mass produce monolayer graphene, can obtain advanced income with the help of the rapid development of downstream industrialization and commercialization of graphene. Since 2016, a number of universities and enterprise research institutions, including Zhejiang University and Huawei, have frequently released research results on the application of graphene. We believe that the downstream application of graphene is in the stage of accelerating ice breaking. With the acquisition of 15% of Xiamen Hengli Shengtai, the company can seize the market of new graphene materials with the help of industrial ice-breaking. At present, the core problem restricting the development of graphene industrialization is that it can not be prepared in large quantities, and the other is that the technology of better combination with downstream materials is not perfect. Hengli Shengtai actual controller and his team hold more than 200 graphene-related patents, which can prepare graphene stably on a large scale and solve one of the core problems; at the same time, there are also more than 80 patents for downstream applications of graphene, mainly focused on lithium-ion batteries, composite materials, heat dissipation materials, functional coatings and other fields to solve the second core problems. Its technology and products have begun to be recognized by the downstream market, and orders have been signed for about 6 billion yuan from January to September 2016. It is estimated that the actual completion of profits in 2016-2018 will exceed the performance commitment of 500 million yuan, 600 million yuan and 700 million yuan.

Overseas engineering general contract orders benefit from the devaluation of the RMB exchange rate and are expected to earn excess profits. Since 2015, the company has received overseas orders of nearly 10 billion yuan. We predict that the net income of overseas orders will be higher than that of China, and combined with the continued decline of the RMB exchange rate, the company's overseas engineering orders are expected to have further room for revenue improvement. Considering that the company began to enter the revenue recognition peak of contract orders in 2017 and the winning projects began to enter the revenue recognition peak in 2018, we predict that the average annual revenue of overseas orders from 2017 to 2019 will exceed 300 million yuan, which can effectively support the company's long-term performance growth.

Maintain the company's "buy" rating: the company has obvious regional advantages and engineering general contracting experience in the field of PPP, and is expected to become one of the performance growth points in the future; the company has completed the acquisition of 15% equity in the graphene company, and it is expected that the investment income will be accounted for from 2016 onwards. At the same time, the depreciation of the exchange rate of overseas engineering general contract income will bring considerable contribution to the company's performance. Based on the above reasons, we raise our profit forecast for the company. It is estimated that the EPS of the company from 2016 to 2018 will be 0.38,0.82,1.04 respectively, and the corresponding share price PE will be 32.03,14.72,11.54 times, maintaining the "buy" rating of the company.

Risk hint: the risk that the schedule of the PPP project falls short of the expected risk; the risk that the rate of return of the PPP project falls short of the expected rate of return; the risk that the development and industrial application of graphene technology falls short of the expected risk; the risk that the graphene output falls short of the expected risk; the risk that the construction schedule and revenue of overseas projects fall short of the expected risk.