Main points of investment:

Solar water heater business is expected to remain basically stable. The overall sales of solar water heaters have declined, the growth rate of ownership has slowed down, and the industry has entered a stage of deep adjustment. According to industry online data, the domestic sales of solar water heaters in the industry from January to November 2016 fell by 16.73%, down 16.73% from the same period last year. Export 748600 units, down 1.75% from the same period last year. The market competition pattern shows a trend of differentiation, the overall competition in the middle and high-end market is stable, and the overcapacity in the low-end market is highlighted. As the leader of the solar water heater industry, the company has "Sun Rain" (China's well-known trademark, top ten leading brands) and "four Seasons Bu Song".

(Chinese famous brand products) two famous brands, and have more than 5000 first-tier marketing outlets and more than 20000 secondary marketing outlets across the country, brands and channels are highly competitive, the company's solar water heater business as a whole is expected to remain stable. At the same time, the company makes great efforts to expand the business of household and commercial water purifiers to create a collaborative ecology of the "air, water, sunshine" industry chain. It is estimated that the company's main business income will remain basically stable in 2016, and the net profit will remain at around 250 million-300 million.

The acquisition of Shuaikang to enter the kitchen and electricity business, strong cooperation. On December 2, 2016, the company disclosed that it plans to acquire a 75% stake in Zhejiang Shuaikang Electric Co., Ltd. with cash of no more than 750 million yuan. The net profit of Shuaikang Electric is 70.83 million yuan in 2015 and 75 million from January to October 2016. The valuation is relatively reasonable. We believe that the company's acquisition of Shuaikang is mainly based on the following considerations: 1) the solar water heater industry is in a deep adjustment, hoping to transform and expand into the business of kitchen electricity, water purifiers, air purifiers and other categories, so as to solve the problem of single business and open up new growth points. 2) Shuaikang Electric has high-quality assets: Shuaikang Electric used to be a veteran kitchen and electricity enterprise in China, and was once a leader in China's range hood industry, and later formed a tripod pattern among Fang Tai, boss and Shuai Kang in high-end kitchen electricity. Due to improper diversification and poor management of the company, Shuaikang's market share continues to decline. According to Zhongyikang data, the proportion of Shuaikang retail sales from January to October 2016 was 3.02%. There is a big gap with the boss, Fangtai 17.14% and 15.05% of the market share. We think that Shuaikang brand strength and product quality are excellent. Through integration and increasing investment, it is expected to reinvigorate and contribute more profits to the company. 3) the company's water heater management channel was mainly in third-and fourth-tier cities, Shuaikang kitchen electricity channel is mainly in the first and second line KA, water heater and kitchen appliances are household appliances, the channel coincidence is high. And Shuaikang first and second line, and the company's third and fourth-tier city channels are highly complementary, and the two sides cooperate strongly after the acquisition.

Solar energy storage business has become a new bright spot. There is a large market demand in this field, the company is actively expanding cross-seasonal energy storage, adopting PPP and BOT and other ways, the main projects focus on government money to improve residents' heating; previously, the company's solar seasonal heat storage heating project in Hebei University of Economics and Economics has been running well for more than 3 years, and the payback period is expected to be 5-7 years. The company holds hands with Arcon-Sunmark of Denmark to set up a joint venture to provide systematic solutions for China's solar energy cross-seasonal heat storage heating and large-scale solar thermal projects, focusing on large-scale high-end solar systems. We believe that as the only successful implementation of large-scale hot water energy storage and heating project in China, the company has strong technical strength and broad prospects in the future.

Profit forecasts and investment advice. Regardless of the influence of Shuaikang, we maintain the company's earnings per share forecast of RMB 0.34,0.38 and RMB 0.42 for 2016-2018, respectively, with a corresponding dynamic P / E ratio of 29 times, 26 times and 23 times, respectively. the company's water purifier and hot water energy storage business is developing well and the investment rating of "increasing holdings" is maintained.