Key investment points: The entire industry chain is growing rapidly, actively expanding the solid waste sector: In 2015, the company achieved operating income of RMB 1.56 billion, an increase of 41.57% over the previous year. Since the company was founded in 2011, the average compound growth rate of operating income in the four years has reached 57.4%. Net profit of RMB 285 million was realized, with a four-year average compound growth rate of 33.42%. The company's main businesses, water supply, sewage treatment, construction and equipment sales, have all maintained rapid growth compared to peers. In addition to existing business, the company has begun to expand solid waste business. Currently, it has consolidated assets of 2.2 billion yuan. In 2016, all revenue from this sector is included in the report. It is expected that the company's operating income and profit will rise significantly, and solid waste revenue is expected to reach 300 million yuan. Environmental protection policies are favorable, and urbanization construction stimulates demand: the “Ten Rules of Water” clearly accelerate the construction and renovation of urban sewage treatment facilities and put forward corresponding goals, requiring all sensitive water areas to reach Class A standard by the end of 2017. The Ministry of Environmental Protection expects the environmental protection industry to increase output value by 19,000 yuan. In 2015, the urban sewage treatment rate reached 91.97%. In the future, the new construction market tends to be saturated, and there is still room for inventory market renovation business; however, the sewage treatment rates of counties and towns are only about 80% and 30%, respectively. The advancement of urbanization has increased sewage discharge in counties and towns, and demand for sewage treatment services will also increase. Based on the company-level PPP model, enjoy the dual advantages of state-owned enterprises and private enterprises: Yunnan Water is a PPP model company jointly funded by Yunnan City Administration and Bishuiyuan. At the time of establishment, the company received asset injections for 29 sewage treatment plants from Yunnan City Investment, and the state-owned enterprise background not only helped in obtaining projects within Yunnan Province, but also had a supporting role in developing business in other regions of the country. Bishuiyuan signed an agreement with the company. The company can use Bishuiyuan membrane technology free of charge. Compared with traditional processes, the membrane process has advantages such as high effluent quality, small floor space, and less remaining sludge. Simultaneous expansion of markets outside the province and overseas: The company uses Yunnan as its business base and its prominent market position in Yunnan Province as a springboard to expand projects nationwide. Currently, it has carried out business in 10 provinces including Xinjiang, Shandong, Anhui, and Jiangsu. While developing domestically, it also takes advantage of its location to actively develop the Southeast Asian market. It has acquired waste incineration and landfill businesses in Thailand and Indonesia, respectively, and undertook the Chiang Mai municipal tap water supply BT project. Valuation and ratings: We expect the company's net profit for the year 16/17/18 to be RMB 4.05/4.76/595 million, respectively, and EPS of RMB 0.34/0.40/0.50 (HK$0.40/0.47/0.59), respectively. The company's operating conditions are stable and growth is rapid. We gave the company 14 times P/E in 2016, corresponding to the target price of HK$5.60, and gave it an “increase in holdings” rating. Risk warning: The sewage treatment and water supply industry is at high risk of being affected by policies, and policy changes may have an impact on the company's performance; industry concentration is low and competition is intense; solid waste treatment business revenue and performance have not met expectations.