The company released the 2016 semi-annual report The company released the 2016 semi-annual report, achieving operating income of 42.72 million, an increase of 151.38% over the previous year; net profit of 23.58 million, an increase of 8.47% over the previous year. Changes in revenue and net profit were in line with expectations. The increase in revenue is mainly due to mergers and additional subsidiaries; net profit is a loss. On the one hand, due to the company's increased scale of foreign investment and is in the cost investment stage, corresponding costs, expenses, etc. have increased over the same period; on the other hand, the planned projects of the Institute of Human Settlements have generally only been reflected at the end of the year. The semi-annual net cash flow from operating activities was -55.84 million, a sharp increase of 92.07% over the previous year, due to the sharp increase in cash purchased goods and providing labor payments over the same period last year. The company made substantial progress in the direction of sponge cities in the first half of the year Sponge City is something that the government must do. Progress is lower than expected, mainly due to lack of supporting policies, and the government is resolving the obstacles one by one. The company recently won the bid for a PPP project to build a sponge city in Qian'an City, breaking the impasse, proving that the company's idea of “starting with planning and bringing construction projects” is feasible, then increasing capital in the Central Century to strengthen its construction capacity; and it also revised the non-public stock offering plan, changing the fundraising direction to “Qian'an, Pingxiang, and Suining” to enhance the feasibility of the plan. This revision is in line with our expectations. Currently, only the Qian'an project has been determined. At the same time, the company also actively participated in the selection of the second batch of sponge city pilot projects, expanded the scope of cooperation projects, and created favorable conditions for continuing to win bids for sponge city projects in the future. The company wants to build a smart drainage system construction project, create profit advantages while enhancing collaboration. The company added plans to invest 1.07 billion dollars in the direction of smart drainage systems, and then achieve project sales and profits through sales of software and hardware products, specialized consulting and technical services, preparation of related plans and plans, facility operation, or PPP project construction, etc. The company will combine the construction of the sponge city PPP project that has won the bid to simultaneously promote smart drainage systems, with a certain degree of synergy. It is estimated that the construction period will be 3 years and the promotion period will be 2 years. The average annual revenue (excluding tax) for 10 years after construction is completed is 1,394 million yuan, and the average annual net profit that can be realized within 10 years is 208 million yuan. The previous fund-raising commitment project has basically been completed. The company's previous fund-raising has completed debt repayment of 370 million yuan and increased capital to clean up the Human Settlements Research Institute by 50 million yuan, greatly reducing the company's financial expenses and enhancing profitability; the remaining amount is used to pay 4.5 million yuan of registered capital to supplement the company's trading business operating capital of 60 million, which is a small amount or relatively flexible, so implementation has basically achieved fund-raising results. Huakong SEG made substantial progress in the first half of the year, and it took time to show results. Maintaining the “buy” rating company's performance in the first half of the year was still losing money, but the company made substantial progress in the direction of sponge city. While continuing to obtain a wide range of sponge city design and planning projects, it obtained a sponge city construction project in Qian'an, and revised the fundraising plan to enhance feasibility. However, Sponge City is not an immediate project; it will take time to achieve results. We maintain a “buy” rating for Huakong SEG. We expect the 2016-2018 EPS to be 0.10/0.35/0.42 yuan. Risk warning: Policy progress falls short of expectations; industry competition is intensifying.