Event: The company released its 2013 semi-annual report and achieved operating income and net profit of 375 million yuan and 38.1 million yuan respectively from January to June, up 25.72% and -14.24% year on year; achieved earnings of 0.11 yuan per share, lower than expected. Comment: The progress of the south-to-north water transfer project has slowed down, causing revenue growth to fall short of expectations. In January-June, revenue from concrete pipes and plastic pipes was 230 million yuan and 145 million yuan respectively, up 19.1% and 37.89% from the previous year. The growth rate of plastic pipe revenue was significantly higher than that of concrete pipes. Mainly, due to factors such as high temperatures and heavy rain for the south-to-north water transfer project, the overall delivery and acceptance progress was slow, and revenue confirmation fell short of expectations (only 92.83 million yuan was confirmed in central China; basically all of the south-to-north water diversion in the south to north in the south to north of the south to south in the south to north is in the Henan section). The decline in gross margin and the increase in the period expense ratio have reduced the growth rate of operating profit. The gross profit margin for the first half of the year was 27.67%, down 1.6 percentage points from the same period last year; the period expense ratio was 14.46%, up 2.25 percentage points from the same period last year, of which the sales expense ratio was 5.39%, up 0.55%, the management expense ratio was 9.93%, up 0.16%, and the financial expense ratio was -0.86%, up 1.53%. The rapid rise in labor costs, the high cost of investing in newly established subsidiaries, the increase in service fees for winning bids, the reduction in time deposits, and the increase in loans are the main reasons for the decline in gross margin and the increase in the period fee ratio. There are still plenty of orders in hand to ensure performance growth. New orders of 928 million yuan were signed in the first half of the year, orders of 1.37 billion yuan are being executed, and 533 million yuan of unexecuted orders have been signed. Currently, sales orders total 1,903 million yuan. With the gradual bidding for the Hebei section of south-to-north water diversion and the beginning of management of urban flooding one after another, the company's orders are expected to reach a new level and guarantee performance growth. Urban flooding has forced the government to step up management efforts. Four years of continuous urban flooding in summer have caused great inconvenience to economic construction and people's lives, and forced the government to step up governance efforts. Cities such as Beijing have shown signs of corresponding planning. On April 1, the State Council issued the “Notice on Accomplishing the Construction of Urban Drainage and Waterproofing Facilities”, which requires that the construction plan for urban drainage and waterproofing facilities be completed by the end of next year, and that efforts be made to complete the rain and dirt diversion transformation of the drainage network in 5 years, and that a relatively complete urban drainage and waterproofing system be built in about 10 years. Meanwhile, in June and July, Premier Li emphasized three times the need to address the backward construction of urban water supply networks, and the development of the industry will usher in an opportune moment. Profit forecast and rating: Due to the impact of the progress of the south-to-north water transfer project, we lowered the company's 2013 performance. The company's 2013-2014 EPS is expected to be 0.34 yuan and 0.59 yuan respectively. Considering the company's abundant orders, it guarantees performance growth, and maintains an “increased holding” rating. Risk warning: The gross margins of the Henan and Hebei sections of south-to-north water diversion were low; water conservancy investment fell short of expectations during the 12th Five-Year Plan period.