Incident: The company announced that it has reached a cooperation agreement with the Liuzhi Special Administrative Region People's Government on integrated water services and accurate domestic sewage treatment projects throughout the Liupanshui Special Administrative Region. The cooperation method is PPP, with a total investment of 1 billion yuan. Key investment points: The signing of a 1 billion yuan cooperation agreement, if successfully implemented, will significantly enhance future performance. The content of this cooperation agreement is to accurately treat all domestic sewage in villages, townships and urban areas of the Liuzhi Special Administrative Region, upgrade tap water to meet national requirements, and carry out comprehensive treatment of black and smelly water bodies. The total investment is 1 billion yuan, which is 165% of the company's 15-year revenue of 604.6 million yuan. If future projects progress smoothly, it will significantly enhance the company's future performance. Currently in the process of acquiring Jiangsu Kemi and Jinqiao Water Engineering, the company with significant business synergy plans to acquire 100% of the shares of Jiangsu Kemi and Jinqiao Water Engineering for 1,427 billion yuan. The merger and acquisition of Jiangsu Kemi strengthens the technical advantages of membrane technology. Jiangsu Kemi specializes in organic tubular membranes and inorganic ceramic films, which are mainly used in food, medicine, etc. After the acquisition is completed, the listed company will become the company with the most complete membrane technology in China. Jiangsu Kemi promised net profit of 60 million yuan, 75 million yuan and 92.5 million yuan in the 16th, 17th, and 18th years. The merger and acquisition of Jinqiao Water Science enhances the company's engineering capabilities. Jinqiao Water Engineering has complete qualifications in design, general contracting and engineering consulting, and is a well-known water treatment engineering company in northwest China. The main advantage of traditional technology is tap water treatment, which has a good effect on water with high turbidity in the northwest region. After the acquisition is completed, the engineering qualifications of listed companies have been completed, and engineering capabilities have been enhanced. At the same time, the listed companies' sewage treatment technology is also expected to enhance the competitiveness of Jinqiao Water in the sewage treatment market. Jinqiao Water Engineering promised net profit of 25 million yuan, 32.5 million yuan, and 42.25 million yuan in the 16th, 17th, and 18th years. Recently, offsite project expansion has accelerated markedly. Future performance is expected. The company is currently actively expanding offsite. It won the Ningxiang PPP project in June, won the bid for the Xi'an Weibei EPC project and signed a PPP investment framework agreement in Ziyun County, Guizhou in August, and established a joint venture with Jiujiang Jiucheng Environmental Protection in December. This time, the offsite expansion has accelerated markedly. In the future, with the gradual implementation of the project, the company's performance will improve markedly. At the same time, after the acquisition of the company was completed, profitability increased dramatically, and engineering expansion capabilities were significantly enhanced. We are optimistic that the company will further expand in the field of engineering in the future. The “Recommended” rating assumes that the company completed the acquisition in mid-'17 and commences consolidation in the second half of the year. The company's EPS for 2016-2018 is expected to be 0.22, 0.50 and 0.90 yuan, respectively, corresponding to the current stock price, the price-earnings ratio of 2016-2018 is 82, 36 and 20 times, respectively. Considering the strong competitiveness of the company's membrane technology, it is currently actively expanding offsite. After the merger and acquisition is completed, there is strong business synergy with the target, and there is plenty of room for future performance development, giving it a “recommended” rating. Risks suggest that project progress falls short of expectations; acquisitions and mergers fall short of expectations; lifting of the ban on restricted shares, etc.