Incident: Kangda Environmental Protection issued an announcement on the evening of June 30. Chongqing Kangda Environmental Protection Industry Group, a wholly-owned subsidiary, signed an agreement with Shandong Guohuan to acquire 9% of its shares in 7 sewage treatment plants, for a total amount of 52.83 million yuan. The total design capacity of the seven sewage treatment plants is 340,000 tons/day. Currently, 250,000 tons/day have been built and operated, 40,000 tons/day under construction, and a reserve of 50,000 tons/day. Comment: The purchase price is reasonable, and the amount of equity processing has further increased. Kangda Environmental has acquired 90% of the shares in the 7 sewage treatment plants that are the subject of the acquisition in the previous acquisition. The remaining 9% of the shares of the above 7 sewage treatment plants were acquired in this round, with a total amount of 52.83 million yuan, which is in line with the prices of the previous two rounds of acquisition. The total design capacity of the seven sewage treatment plants is 340,000 tons/day, and 280,000 tons/day has been completed and put into operation. The completion of the acquisition will increase Kangda Environmental's equity treatment capacity by 30,600 tons/day, at a unit price of about 1,726 yuan/ton. By the end of 2015, the seven sewage treatment plants had net assets of 629 million yuan and net profit of 53.28 million yuan. The purchase price is equivalent to 11.02 times PE and 0.93 times PB in 2015. According to current stock prices, Kangda Environmental Protection's static PE was 8.74 times and PB 0.89 times in 2015. Considering the increase in the volume of operations and processing of acquired assets over the past two years, profitability will be further enhanced, and pricing is consistent with previous acquisitions without any adjustments, we believe that the purchase price is still reasonable. There is plenty of cash on hand, and there is great potential for new projects to expand in the second half of the year. Kangda Environmental Protection had 1,742 billion yuan in cash at the beginning of the year. Currently, most of it has not been spent, so there is great potential for growth in its new projects in the second half of the year. Driven by the new PPP policy and the “Ten Rules for Water,” market-based reforms are expected to accelerate in the water market, and private enterprises are expected to gain more market share. The company is the largest private water group in China, and there will be huge room for growth in the scale of water treatment in the future. Investment advice: The current market unanimously expects Kangda Environmental Protection's net profit of 397 million yuan in 2016, corresponding to 7.15 times the current stock price of PE, which is only 53% of the median value of 13.5 in the environmental protection and water sector of the Hong Kong stock market. The valuation is very attractive. Investors are advised to pay active attention to risk alerts: competition in the sewage treatment market has intensified, the number of new projects has fallen short of expectations, and the RMB continues to depreciate.