Events:

On the evening of September 8, the company issued a pre-plan for non-public offering of shares with no less than 7.33 yuan per share and no more than 25069.85 million shares to no more than 10 specific objects, raising no more than 1.838 billion yuan. It is intended to be used for sewage treatment plant expansion and bid raising and renovation projects, energy station projects, as well as supplementary working capital and repayment of loans. The company's shares will resume trading on the 9th.

Comments:

This fund-raising will effectively alleviate the financial pressure of the company. On the one hand, it will provide guarantee for the smooth implementation of the sewage treatment project and the energy station project. After the fund-raising project is completed, it will further expand the company's existing business scale of sewage treatment (additional capacity 150,000 tons / day) and cooling and heating (new area of 671000 square meters). Improve operating income and profitability, and will help accelerate the expansion of the company's business. On the other hand, the company's financial structure will be optimized, the asset-liability ratio will be reduced, and the sustainable operating ability will be enhanced; at the same time, the financial expenses will be reduced, which will help to enhance the company's profitability.

Sewage treatment orders have been continuously enriched, laying the foundation for sustained and rapid growth. In June this year, the company signed an agreement, the urban area of Tianjin will be Jingu (in-situ bid-raising transformation + expansion of 100000 cubic meters / day), Beichen (in-situ bid-raising transformation + expansion of 50,000 cubic meters / day), Dongjiao (200000 cubic meters / day more than the original) and Xianyang Road (relocation and bid raising). The scale remains unchanged) four sewage treatment plants will be upgraded, and the sewage treatment scale will be increased by 350000 cubic meters per day after completion. At the same time, the company increases the market development efforts of sewage treatment business, and recently won the bid Yingshang County sewage treatment plant BOT project (40,000 tons / day) and Ningxiang Jingkai District sewage treatment plant PPP project (150,000 tons / day, of which the first phase is 50,000 tons / day), the two projects will increase the sewage treatment scale by 190,000 tons / day. The bid raising, transformation, capacity expansion and market development, and the continuous abundance of orders for sewage treatment projects have laid a solid foundation for the company to achieve sustained and rapid development.

Accelerate the transformation and upgrading, and the growth space is expected to continue to open.

The company's strategy is located in the water environment integration solution provider, while tamping the main water business, accelerate the promotion of diversified business layout. 1) external sales of deodorization business of urban sewage treatment plants; 2) steady expansion of new energy cooling and heating business; 3) trial of financial leasing business to cultivate new profit growth points; 4) layout of PPP field, growth flexibility is expected. Diversified business development will accelerate the pace of transformation and upgrading of the company, and is expected to open up room for sustainable growth for the company.

Profit forecast and investment advice

Leaving aside the dilution of the equity of this non-public offering, we predict that the company's EPS in 2016-18 will be 0.27 RMB 0.31 per share, and the corresponding PE will be 30X/26X/23X, respectively, and will continue to maintain the "overweight" investment rating.

Risk hint

1) Business expansion is lower than expected

2) Gross profit margin declined.