Key investment points: The PPP policy will drive major changes in the water industry. Under the PPP model, water projects tend to be large-scale, packaged, and integrated, and the capital and technical thresholds for water companies will continue to rise, which will accelerate industry integration. Kangda Environmental Protection is an established domestic water enterprise. It has been in business for more than 20 years. It has designed a total sewage treatment volume of 2,879 million tons/day, ranking among the highest in the country. The company is expected to gain new growth opportunities through PPP. A large number of PPP water projects are grass-roots government projects, and the company has been deeply involved in the sewage market in third- and fourth-tier cities for many years. It is more experienced in the operation of such projects, and the advantages of obtaining projects through a bottom-up approach are quite obvious. The company has now pre-won the bid for the PPP domestic sewage project in Yunan County, Guangdong Province, which is a typical village sewage packaging project. Yunan County is a national model county for domestic sewage treatment in rural areas and has great exemplary significance. Using this as a starting point in the future, the company is expected to successfully implement a second transformation using PPP as a new growth point in the context of declining traditional projects. Investment advice: The current market unanimously expects Kangda Environmental's net profit of $397 million (equivalent to HK$461 million) in 2016, corresponding to 7.00 times the current stock price of PE, which is only 52% of the median value of 13.5 in the Hong Kong stock environmental and water sector. The valuation is very attractive, and investors are advised to pay active attention. Risk warning: Competition in the sewage treatment market has intensified, the number of new projects has not met expectations, and the RMB continues to depreciate.