Performance is in line with expectations: the company released a semi-annual report, achieving operating income of 570 million yuan, an increase of 55.9% over the previous year, net profit of 170 million yuan, an increase of 51.9% over the previous year, and an EPS of 0.18 yuan, which is in line with previous performance forecasts. Looking at a single quarter, it achieved operating income of 380 million yuan, an increase of 66.7% over the previous year, and realized net profit of 130 million yuan, an increase of 51.4% over the previous year. Significant increase in engineering business: The sharp increase in the company's revenue and profit is mainly due to the rapid increase in engineering business. On the revenue side, the company's water supply business was relatively stable, with sales volume increasing 4.7% to 111.57 million cubic meters, and corresponding water supply revenue increased 3.8% to 230 million yuan. Furthermore, thanks to the continuous expansion of engineering business by municipal engineering companies, the project installation business achieved revenue growth of 147.3% over last year to 330 million yuan. There was a slight decline in gross margin: in terms of profitability, the company's gross margin fell 3.0 percentage points from last year to 53.5%. By business, the gross margin of the water supply business fell 4.4 percentage points to 50.0%, mainly due to the impact of serious freeze damage in Jiangyin in February, and the gross margin of the engineering business fell 2.8 percentage points to 56.9%, mainly due to the increase in external engineering business costs for subsidiary municipal engineering companies. Furthermore, thanks to refined management, management and sales expense ratios fell by 4.0 and 3.3 percentage points to 7.8% and 6.1%, respectively. Cash flow is stable, and external expansion is worth looking forward to: the company's water supply business is profitable. The company currently has 1.17 billion yuan in cash, net cash flow from operating activities in the first half of the year, 170 million yuan, and abundant cash flow. Last year, the company set up Lijiangyin Huakong People's Home with Suzhou Huakong Qingyuan and Hangzhou Rongyu, and set up funds with Huakong SEG and Huanneng Technology to set up splendid Jiangnan, respectively, to intervene in smart water, sponge cities, and hazardous waste treatment fields. The good financial situation provided a solid foundation for subsequent development. State-owned enterprise reform & PPP to promote growth: According to the latest batch of PPP project database information, out of the 105 implementation demonstration projects, 82 have entered contracted social capital information. There are 119 contracted social capital, including 43 private enterprises, 8 mixed ownership, 3 foreign enterprises, and 65 state-owned enterprises (including wholly state-owned and held enterprises, including state-owned enterprises listed overseas), with private enterprises accounting for 36%, and the participation rate of state-owned enterprises in the top three categories is 45%. The participation rate of state-owned enterprises is high. We believe that state-owned enterprises and central enterprises have more resources and are easier to obtain PPP projects, yet Jiangnan Water, as the only state-owned listing platform in Jiangyin, is rich in resources and capital, so future PPP projects are worth looking forward to. Investment advice: We believe that the forced reduction of holdings in the trust plan will have a negative impact on the company's stock price in the short term, but it will not affect the company's long-term development plans, and the equity incentive plan will also increase the motivation of executives. As the only listing platform in Jiangyin, the company's future state-owned enterprise reform and PPP business are worth looking forward to. Furthermore, the company has stable cash flow and abundant cash, all of which provide a foundation for subsequent extensions, etc. It is estimated that the 2016-2018 EPS will be 0.44 yuan, 0.60 yuan, and 0.78 yuan, and the corresponding PE will be 20X, 15X, and 11X, maintaining the “buy-A” rating, with a target price of 11 yuan for 6 months. Risk warning: The engineering business fell short of expectations.