Key investment points Kangda Environmental Protection issued an announcement: After completing competitive negotiations, Kangda Group signed an EPC contract with the People's Government of Shancheng District of Hebi City on September 19, 2016, for a total amount of 2.1 billion yuan. The Hebi project signed an EPC contract, and the progress of PPP implementation accelerated. The company's previously announced PPP project for water environment management in the Tanghe River Basin in Hebi City signed an EPC contract, marking its official implementation. Construction will also begin in Yunan, Guangdong, and Rushan in Shandong within this year. The company has extensive development in the PPP field. At this stage, it is at the forefront of the industry in terms of number of projects and implementation progress. Invest in Zhongyuan Asset, and the acquisition of future PPP orders is highly certain. Kangda Environmental Protection has invested 450 million yuan to acquire 15% of the shares of Zhongyuan Asset Management Company. As the only shareholder of Zhongyuan Asset with an environmental background, Kangda Environmental Protection will play an important role in its business directions such as major infrastructure, sponge cities, and watershed management. In the future, the certainty that Kangda Environmental will continue to obtain PPP projects in Henan Province will greatly increase. PPP is currently the main investment logic, and Kangda Environmental Protection will continue to benefit. Recently, the National Development and Reform Commission released the third batch of PPP project banks, with a total amount of 2.14 trillion yuan. Previously, the Development and Reform Commission had introduced two batches of PPP project banks in May and December 2015, respectively, with a total investment of 4.23 trillion yuan. Policies are being strengthened continuously to promote PPP as one of the most important and sustainable investment lines at present. Kangda Environmental Protection actively participated in PPP projects related to environmental protection and water services, and some projects were gradually implemented. We expect the company to continue to benefit from policy dividends in the medium to long term, and that overall growth will reach an inflection point. Investment advice: We expect the company's 2016-2018 EPS of 0.20/0.24/0.29 yuan, corresponding to the current stock price of PE 7.8/6.4/5.2 times. The implementation of the PPP project will greatly increase the company's potential growth level. We maintain our “buy” rating with a target price of HK$2.25. Risk warning: Fiscal solvency declined, PPP project yield fell short of expectations, and RMB depreciation.