Incident The company released its semi-annual report. In the first half of 2016, the company achieved operating income of 574 million yuan, an increase of 55.85% over the previous year, and net profit of 170 million yuan, an increase of 51.94% over the previous year. Our review engineering installation business continues to expand, and performance has increased significantly. The company achieved revenue of 574 million yuan in the first half of 2016, an increase of 55.85% over the previous year, of which engineering installation and tap water business each accounted for 57% and 40% of total revenue. The engineering installation business increased by 147.3% year on year, leading to a significant increase in performance. The municipal engineering company, a wholly-owned subsidiary of the company, achieved remarkable business development results in the first half of the year. The municipal engineering company's operating income in the first half of the year reached 390 million yuan (accounting for 67.9% of total revenue) and contributed 124 million yuan in net profit (accounting for 72.9% of total net profit). The tap water business is developing steadily, contributing to stable cash flow. The company completed 128 million cubic meters of water supply, 51.07% of the annual plan, an increase of 5.85% over the previous year; completed sales volume of 11,700 cubic meters, completed 53.08% of the annual plan, an increase of 4.67% over the previous year; the average daily water supply volume was 701,500 cubic meters, the production and sales margin was 8.53%, and the overall water quality qualification rate was 100%.? The company is currently executing a total of 4 contracts of more than 20 million yuan, of which 3 are engineering construction contracts, including Qishan emergency backup water source construction and installation, water supply business housing construction project, and Xiaowan Water Plant advanced treatment project, with a total project value of 402 million yuan; the other is a project construction management contract with a project value of 522 million yuan. The profitability of existing assets is outstanding, establishing a margin of stock price safety: 1) Currently, the company's water supply capacity is 1.16 million tons/day, and the gross profit margin of the water supply business is about 50%. The indicators such as leakage rate and energy consumption are all better than the industry average. Profitability is outstanding, and the annual contribution to stable cash flow is outstanding. 2) Rapid growth in engineering business: Benefiting from the increase in pipeline engineering, water plant renovation and Qishan emergency backup water source project, it contributed incremental revenue and guaranteed a 25% compound growth rate of the company's net profit in 2016 and 17. Equity incentives demonstrate confidence in development. In June '15, the company's senior management increased their holdings by 35.6 yuan/share by 665,700 shares. In September of the same year, the company announced a draft restricted equity incentive to grant 2.28 million shares of restricted shares to 53 incentive targets by fixed increases. The grant price is 14.31 yuan/share. The unlocking conditions are that net profit from the mother in 2016, 2017, and 2018 is not less than 284, 337, and 3.9 billion yuan respectively. The unlocking ratio is 40%, 30%, and 30%, respectively, demonstrating management's confidence and determination in the future development of the company. Set up a PPP industry fund to join forces to participate in water environment management. In March 2016, the company signed agreements with Huakong SEG, Huanneng Technology, Yuze Investment, and Taihong Environment to design an environmental industry fund. The total fund size is 5 billion yuan, and the initial scale is 1.5 billion yuan, of which Jiangnan Water has invested 200 million yuan, accounting for 13.33%. The industrial fund will invest in PPP projects such as “Sponge City” and “Black and Smelly Water Bodies” that have won bids from Huakong SEG, as well as equity investments in monitoring and evaluation of the equipment manufacturing environment. Using Huakong SEG's resources and experience in sponge city construction, the company will actively participate in water environment management, and the scope of business is expected to expand further. Profit forecasts and investment recommendations predict that the company will achieve net profit of 360 million yuan and 450 million yuan per parent in 16-17, corresponding to EPS of 0.38 and 0.48 yuan, respectively. Currently, the company has 1.2 billion dollars in cash, and after deducting cash, the actual market value of the company is only 7 billion dollars, laying a high margin of safety. We expect that the company's external expansion will accelerate in the midst of state-owned enterprise reform and the PPP wave, and the improvement in the efficiency of cash utilization will bring greater performance flexibility and give it a “buy” rating. The comprehensive gross margin is high, and continued profit is guaranteed. Due to the increase in pipeline network and equipment renewal and repair costs, the gross margin of the company's tap water business and engineering installation business decreased by 4.37pct and 2.77pct year-on-year, to 49.95% and 56.88% respectively. The company's comprehensive gross margin for the first half of the year was 56%, down 2pct from the previous year, but remained at a high level. High operating income and high gross margin levels provided a strong guarantee for the company's continued profit.