Tianjie Environment yesterday issued a positive profit forecast for the surge in medium-term profits for fiscal year 2016 due to: (1) the company's increased bargaining power; (2) the company's ability to undertake projects with higher gross margins; and (3) low steel prices in China. Repeat "buy" with a target price of HK $8.01.

Medium-term profits in fiscal year 2016 soared. Tianjie Environment yesterday issued a positive profit forecast for a sharp rise in medium-term profit in fiscal year 2016 compared with RMB 22.7 million in fiscal year 2015.

The reason for outstanding performance. Tianjie attributed the profit growth to 1) the significant improvement in market recognition and competitiveness after listing in Hong Kong, which further strengthened the bargaining power of the company's projects; 2) benefiting from continuous technological research and development, the company has the ability to undertake projects with higher gross margins; 3) the low steel price in China has boosted the company's profitability.

The results will be announced on or before August 25. The company will announce its interim results no later than August 25, 2016. We will review the financial model at that time.

Repeat "buy". Due to the attractive valuation of the company, we maintain the "buy" of Tianjie environment.

The target price is HK $8.01, based on a price-to-earnings ratio of 8.5x for fiscal year 2016, with a potential increase of 41.8 per cent.