Kangda Environmental Protection (Kangda) announced its results for the first half of 2016. Total revenue increased 15.0% year-on-year to RMB 902 million, which is worse than our forecast of a 19.5% increase for the full year of FY16. Core profit fell 6.8% year over year to RMB 128 million, worse than our forecast for the full year growth of 27%. Supported by public-private joint ventures, we are still optimistic about Kangda's performance in the second half of 2016. Growth in the second half of the year is expected to fall behind, and purchases will resume, maintaining the target price of HK$2.21. The growth was not as expected. Kangda's total revenue in the first half of 2016 increased 15.0% year on year. We believe it was mainly due to (1) the slow growth in processing capacity due to the bureaucratic style of local governments and (2) the tax impact of business reform and growth. On the other hand, Kangda's net profit did not increase as expected, mainly due to (1) the increase in administrative expenses to 11.7% of sales from 10.7% in the same period last year due to new business development; (2) other expenses of RMB 15.1 million due to refundable donations; and (3) financing costs arising from the issuance of RMB 900 million corporate bonds at the end of 2015. After falling behind in the second half of 2016, we believe Kangda's earnings and profits are expected to improve in the second half of 2016 because (1) public-private joint ventures will bring construction revenue contributions; (2) expand other business areas, such as water supply business; and (3) implement cost-saving measures, such as using solar power in sewage treatment plants. Kangda has established four business units in the sewage treatment industry value chain to provide services such as water supply, sewage treatment, sludge treatment, and water environment remediation. Public-private joint ventures have become future growth points. Facing fierce competition in the traditional sewage treatment industry, Kangda strategically shifts the focus of its business to public-private joint ventures. Kangda announced two public-private joint ventures with a total investment of approximately RMB 1 billion. We believe Kangda (1) can collect construction revenue during project construction; (2) may charge usability service fees during project operation; and (3) may receive maintenance and operation revenue for the provision of operating services. Repurchase and maintain the target price of HK$2.21. We remain unchanged in our forecast and therefore maintain our cash flow discount target price of HK$2.21. Our target price is equivalent to 8.1 times the price-earnings ratio predicted for FY17, 1.5 standard deviations lower than the average price-earnings ratio forecast for the previous five years, 13.5 times lower than the average price-earnings ratio forecast for the past five years, and far lower than the industry average predicted by Bloomberg by 14.1 times. We believe the valuation concession is due to earnings growth in FY15 falling short of expectations. Key risks: (1) project acquisition is slower than expected; (2) competition reduces profit margins; and (3) interest rate hikes.