Matters: The Port Entry Department, the controlling shareholder of the company, signed the “Tianjin Petrochemical Community Water Supply Transfer Agreement” with Tianjin Petrochemical, and plans to sign an “Entrusted Operation Contract” to entrust the operation and management of the Tianjin petrochemical community and living area water supply business to Binhai Water Industry, a wholly-owned subsidiary of the company. 1) The company and China Development Fund increased capital by 9 million yuan and 43 million yuan respectively, and invested in Zhongfu Tianhe Smart Pension Industry Operation and Management (Tianjin) Co., Ltd. After the capital increase, the shares of the company and CDF were 9.3% and 46.4% respectively; the shares of the original shareholder Zhongfu Aging Industry Development (Tianjin) Co., Ltd. fell from 100% to 44.3%; 2) The company plans to transfer the shares of Zhongfu Tianhe held by the China Development Fund over a four-year period, and the China Development Fund received a cash premium and repurchase dividend within 10 years. Other investment income ( Based on an annual return on investment of 1.2%). The company plans to jointly establish the “Southern University of Science and Technology - Bohai Joint Research Institute for Environmental Governance” with the Engineering Technology Innovation Center of Southern University of Science and Technology to cooperate in scientific research and development, transformation of achievements, resource integration, technical consulting, talent training, industry alliances, etc., to establish a long-term mechanism for school-enterprise strategic cooperation; the company plans to provide the Institute with a cumulative funding of no less than 10 million yuan for technology research and development over three years. Comment: The main water business is steady, expanding Sinopec's water operations and increasing performance. The company's main business is raw water, tap water supply and sewage treatment. The business scope is the Binhai New Area of Tianjin City and the area north of Yongding New River. The company's daily water supply capacity for raw water and tap water in 2014 was about 1.66 million tons, and the actual daily water supply volume in 2014 was about 780,000 tons. After Ada Water Supply, a subsidiary of Binhai Water, undertook the petrochemical project, it added about 30,000 tons of water supply per day, including 10,000 tons for the community and 20,000 tons for industrial zones. Based on the calculation of Tianjin's residential water price of 4.9 yuan/cubic meter and industrial water price of 7.85 yuan/cubic meter, the start of water supply will increase the company's annual revenue by about 75 million yuan, accounting for about 10% of the company's total revenue in 2014, which will increase the company's business performance; in the future, it will also strongly promote in-depth cooperation between Binhai Water and Tianjin Petrochemical. The company cooperated with the China Development Fund to take the first step in expanding new smart old-age care businesses, lay out a new type of old-age care industry ahead of schedule, and accelerate the pace of strategic transformation to invest in projects in the Zhongfu Tianhe Smart Elderly Care Service Demonstration Zone. 1) The project is located in the Linhai area of the Sino-Singapore Tianjin Ecological City, with a construction area of 26,500 square meters, including nursing homes and built-in medical service stations, nursing care apartments, elderly activity centers, elderly health management centers, elderly nutrition canteens, etc., as well as a smart old-age service platform. 2) The project is a tripartite collaboration between Zhongfu Aging, Tianjin Tianhe Computer Technology Co., Ltd., and TEDA International Cardiovascular Hospital. It is supported by the country's first 10 trillion supercomputer “Tianhe-1,” and is a demonstration sample of smart old-age care under the “Internet +” jointly created by the Eco-City. 3) “Smart Elderly Care” uses informatization means, the Internet, and IoT technology to develop IoT systems and information platforms for the elderly and the community at home, and provides real-time, fast, efficient, and low-cost IoT, interconnected, and intelligent old-age care services. All parties cooperating with Zhongfu Tianhe will separately integrate their superior resources in the fields of community pension, information and data analysis, and medical and health care. 1) Relying on the powerful computational power of “Tianhe-1”, the project built the “Zhongfu-Tianhe Smart Elderly Care Operation Management System” to collect and analyze future community daily old-age health data, study the technical characteristics of the old-age care industry, integration methods of high-end social medical resources, and old-age care operation service models, etc., and apply it to the standardization and aging adaptation of newly built nursing communities and existing nursing care communities in China. 2) According to Xinhuanet, TEDA International Cardiovascular Hospital will participate in the design planning of medical institutions within the community and provide personnel and technical management support, establish a “Zhongfu Taixin Medical Green Channel” and emergency rescue plans and procedures, carry out regular medical consultation services for residents in the community, and provide IoT medical technology support and maintenance and management of medical equipment. The company uses the China Development Fund to invest in joint ventures between the two parties as an opportunity to seize opportunities and participate in investment cooperation, which helps the company develop new business sectors, accelerate the pace of strategic transformation, and lay out a new type of pension industry ahead of schedule. This cooperation is also in line with our previous judgment. The company will expand into emerging industries in various directions as a platform-based investment company. The China Development Fund provides financing to the company in the form of low interest rates to support the development of smart pension projects. Zhongfu Tianhe is building a national model base for the old-age care industry to explore a new type of community old-age care model that can be learned from and promoted. According to the Tianjin Daily, at present, the Tianjin Eco-City has formed a green industrial system with five leading industries: cultural creativity, Internet+high technology, elite support, cold chain logistics, and coastal tourism. The Zhongfu Elderly Care Program will serve as a supporting element for the elite supporting industry, further improving the supporting functions of the elite city. The country has intensively introduced support policies to accelerate the development of the old-age care and health service industry, and the trillion-dollar blue ocean of the smart old-age care industry needs to be explored. The “China Elderly Care Industry Plan” of the National Office for the Aging proposes that the total output value of China's pension industry should exceed 10 trillion yuan by 2030. According to the “2014 Statistical Bulletin on the Development of Social Services”, by the end of 2014, the country's elderly population aged 60 and above was 210 million, accounting for 15.5% of the total population. The Ministry of Human Resources and Social Security predicts that it will reach 19.3% by 2020 and 38.6% by 2050. At present, China's old-age service industry is still in its infancy, and there is plenty of room for improvement in the quality and supply of services. The whole society's demand for old-age care and health services continues to grow. Against the backdrop of a serious shortage of social resources for old-age care, “smart old-age care” has become an important solution to current social problems and a trend in the development of the old-age care industry. According to “Smart Elderly Care Research Trends,” “smart old-age care” can be divided into three models according to spatial location: smart homes, smart communities, and smart institutions. According to China's “9073” old-age service plan, 90% of the elderly should retire at home, 7% of the elderly in the community, and 3% of the elderly in pension institutions. The focus of smart old-age care is also mainly on community home care. Smart old-age care is also an important part of smart city construction. The “integration of the three networks” supports the implementation of smart old-age services, uses big data applications in “smart cities” to complete service requirements, and uses technological support to achieve effective connection of service resources in multiple fields through multiple windows. At present, all parts of the country have actively explored the use of modern information technology to provide community home care services. The Southern University of Science and Technology - Bohai Joint Research Institute for Environmental Management was established to create integrated technology for water environment and information technology big data to enhance the company's core competitiveness in the field of water environment. Southern University of Science and Technology is a public innovative university led and managed by Guangdong Province in China and founded by Shenzhen with the help of the entire city. The SUSTech Innovation Center has a leading national team to participate in formulating policies, standards and guidelines for China's environmental protection industry. The center closely integrates with the development status and characteristics of China's environmental protection industry, and is positioned to bridge the gap between scientific research results and industrial transformation, so as to bring benefits to society and generate profits for enterprises as development purposes. Through alliances with academia and industry, scientific research results are effectively socialized, industrialized and made public, and the engineering technology center is built into an international innovation platform in the field of environmental protection. The company's strategic goal is to strive to build a first-class large-scale integrated water environment enterprise group in China, promote industrial transformation and upgrading, and enhance the company's core competitiveness in the field of water and environment. Focusing on this goal, the company established the Southern University of Science and Technology - Bohai Joint Research Institute for Environmental Governance. The joint research institute will conduct research on technology, equipment, materials, etc. in the integration of water, environment, information technology, and big data, promote research and development, transformation and project implementation of related technologies, build core technology for enterprises in related fields, and expand development space. The research and development content of the research institute during the cooperation period mainly includes: research and development and application of treatment technologies, equipment and pharmaceuticals such as comprehensive water environment remediation and ecological environment construction in watersheds, soil and groundwater restoration, water pollution control, and sludge solid waste treatment and disposal. During the cooperation period, 3-4 specific research and development tasks were determined to form 2 technological achievements that met the conditions for transformation, and Bohai Co., Ltd. gave priority to technological transformation. Profit forecast and investment rating We expect the company's EPS after dilution in 15-17 to be 0.43/0.79/1.04 yuan, respectively, and the corresponding PE is 74/40/31 times, respectively. The company is a local state-owned water enterprise that is good at capital management and active expansion, and is continuously expanding its business coverage area and business scale; furthermore, the company will act as a platform-based investment company and expand into emerging industries in multiple directions; in the medium to long term, the state-owned enterprise reform trend is expected to bring new growth impetus to the company. It is an excellent target for state-owned enterprise reform and investment with small market capitalization, and maintains a “buy” rating. Risk factors The construction progress of the project is lower than expected, and the progress in the expansion of smart old-age care projects is lower than expected.