Investment Highlights The three-quarter report is in line with expectations, and the company's profitability is stable. The third quarter results are in line with the company's forecast. The cumulative revenue for the third quarter was 1,332 billion yuan, up 118% year on year; net profit to mother was 152 million yuan, up 145% year on year; EPS was 0.35 yuan, up 133% year on year, mainly due to the impact of China Art Ecology's consolidation in March. The company's profit growth rate of 145% in the third quarter fell from 240% in the semi-annual report. We believe it was mainly due to the inability to reliably estimate some project results, which affected the recognition of accounting revenue, and did not affect the company's medium- to long-term profitability. China Art Ecology promised net profit of 115 million yuan in 2016, and achieved combined net profit of 94 million yuan in March-June (reaching 82%), which is likely to exceed the performance promise. Focusing on R&D investment, the entire water treatment industry chain has achieved remarkable results. Through mergers and acquisitions of Zhejiang Dredging, Shuimei Environmental Protection, and Zhongyi Ecology, etc., the company has formed an advantage in the entire water treatment industry chain of “environmental protection equipment+dredging+water treatment+ecological restoration and landscaping”. At the same time, the company attaches great importance to technology accumulation and R&D investment. In 2015, it invested 34.97 million yuan in R&D expenses, accounting for 3.95% of revenue, and the R&D investment ratio has been among the highest in the industry for 5 consecutive years. The PPP model has broad prospects. The PPP project with 15 times the reserve revenue ended on August 31. The total number of PPP warehousing projects nationwide was 10,313, with a total investment of 12.29 trillion yuan. Among them, there were 4208 municipal engineering and ecological PPP projects, accounting for 41%, ranking first. Taking advantage of the PPP policy, the company signed an agreement amount of 12.8 billion yuan for PPP projects such as the Zhaoan County Urban Water Supply and Drainage Project, which is 15 times the company's sales revenue in 2015. The PPP project is gradually being implemented, driving demand for its own filter presses. The company is a leading domestic filter press company, ranking first in the industry in the number of authorized patents and inventions. The filter press business is mainly affected by the removal of coal chemical production capacity. At the same time, less than 9% of the country's PPP projects have entered the implementation stage. It is expected that the demand for its own filter presses will increase dramatically after the company's PPP project enters the construction phase from the fourth quarter to 2017, which is expected to reverse the downward trend in environmental protection equipment and engineering. Set up a 3 billion solid waste industry merger and acquisition fund to explore new models for the company's expansion. On August 26, the company's board of directors approved the joint initiation of the establishment of an environmental protection industry fund with Xingyuan Holdings, Lihan Investment, and Yizhou Fund. Zhou Liwu and Han Xiaofang are actual controllers of the Environmental Protection Industry Fund, Xingyuan Environment, Xingyuan Holdings, and Yizhou Fund. M&A funds can break through guarantee credit restrictions and act as a pioneering force in the expansion of Xingyuan Environmental's solid waste and hazardous waste treatment business. Profit forecasts and investment proposals benefit from the joint efforts of the “Ten Rules of Water+PPP” and “Central+Local” policies. The company reserves 12.8 billion yuan of sufficient PPP projects to provide strong support for performance growth. It is estimated that in 16/17, the company's net profit to mother will be 350 million yuan and 570 million yuan, EPS 0.69 yuan and 1.12 yuan respectively, and the corresponding PE will be 68 and 42 yuan. Referring to comparable company valuation levels, the target price is 51.5 yuan, maintaining the “buy” rating. Risk warning PPP policy implementation falls short of expectations