In the first quarter of 2014, the company achieved operating income of 115 million yuan, an increase of 42.3% year on year; operating profit of 18.3697 million yuan, up 36.98% year on year; net profit attributable to the parent company was 19.315 million yuan, up 32.84% year on year; and earnings per share of 0.01 yuan. There are three main reasons for the large increase in the company's revenue: 1) Tiandi Ren Company merged in August of last year; 2) the subsidiary Zhongke National Interest undertook more projects, and revenue increased compared to the same period last year; 3) the subsidiary Dongying Sewage entered the trial operation period. Net profit after deducting non-net profit increased 9.54%. The company's comprehensive gross margin during the reporting period was 45.26%, down 4.87 percentage points from the previous year. The cost rate for the period was 30.81%, a year-on-year decrease of 4.13 percentage points. Among them, the financial expense ratio decreased by 4.49 percentage points year over year. During the reporting period, the company received non-recurring profit and loss of 6.0815 million yuan, accounting for 32% of the company's net profit. There are two main parts: 1) it received 3.612,300 yuan in government subsidies, including current amortization of asset subsidies obtained from the Hanzhong Project, Changli Sewage Treatment Project Operation Subsidies, and Nianzi Mountain Sewage Treatment Project Operation Subsidies; 2) It received 2,8,104 million yuan in other non-recurring profits and losses. After deducting non-recurring profit and loss, the company's net profit increased 9.54%. The company's future highlights: 1) Looking at the expansion of municipal water supply and drainage in the short to medium term and newly introduced high-concentration wastewater membrane treatment fields. The company's municipal water supply and drainage business accounts for nearly 50% of total revenue. By the end of 2013, the company's water treatment capacity reached 1.497,500 tons per design day corresponding to the contract in hand. The water supply and drainage project continues to advance steadily and has become an important support for the company's current performance. On the other hand, the company completed the wholly-owned acquisition of Tiandi people at the end of July 2013. Relying on its advanced technology and extensive treatment range, the company officially entered the field of membrane treatment of high-concentration wastewater. In the future, the company will continue to step up efforts to expand downstream customers. The fields of municipal water supply and membrane treatment of high-concentration wastewater have become the main growth points for the company's short- to medium-term performance. 2) In the long run, overseas technology helps companies open up the rural water market. The company's long-term focus is to build a water treatment equipment technology system adapted to domestic water quality and the characteristics of the urban market on the basis of overseas technology acquired and introduced, and apply it to the domestic market. In March 2014, the company completed the acquisition of Josab in Sweden. The small water purification equipment produced by the company has the advantages of small size and good effluent quality, and is suitable for the rural water supply market in China. Currently, the sewage treatment rate in villages and small towns in China is low. Based on China's water network data, we estimate that the market size of water treatment in administrative villages across the country is about 100 billion yuan. At the beginning of 2014, the company reached a strategic cooperation agreement with the Shandong Provincial Housing and Construction Department on supply, drainage and pipeline network construction projects in 200 model towns in the province and projects such as upgrading, surface renovation and expansion of existing water plants, thus taking the lead in opening up the rural water market. According to the current population and per capita water consumption and sewage discharge volume of Baizhen, we estimate that the total investment scale for water conservancy construction of this project is estimated to reach 27-4.2 billion yuan, which is the main focus of the company in the long term. Profit forecast and rating: Since Josab is currently still in loss, and the Shandong Baizhen Project is still in the framework agreement stage, we are not considering its impact on the company's performance. The basic earnings per share are expected to be 0.12 yuan, 0.15 yuan, and 0.18 yuan respectively in 2014-2016. Based on the latest closing price, the corresponding dynamic price-earnings ratios are 43 times, 35 times, and 29 times, respectively. If the Shandong project and Josab products are successfully promoted domestically, it is expected to bring a significant increase in the company's performance and maintain the company's “increase in holdings” investment rating. Risk warning: the risk that the project progress will not meet expectations; the risk that the promotion of Josab's technology and products in the country will not meet expectations.