Key investment points 2l017 had high performance growth in the first half of 2017, mainly due to the merger of subsidiaries. The company achieved revenue of 308 million yuan in the first half of this year, up 49.65% year on year, net profit to mother of 284.391 billion yuan, up 68.78% year on year, and EPS 0.13 yuan, up 44.46% year on year. The sharp year-on-year increase in the company's performance was mainly due to the combined results of the same environment in Xi'an, Shaanxi. An introduction to the basic situation of the company. The company is one of the largest enterprises specializing in the production, R&D and service of water treatment agents in China. It has a production capacity of 60,000 tons of water treatment agents. The main products are water treatment agent products such as HEDP, phosphite solids, ATMP and methylene chloride products. Other products are methanol, demulsifier, dry agent, 1227, etc. Through mergers and acquisitions, the company's core business has now expanded into three areas: production and development of water treatment chemicals, domestic sewage treatment, and industrial sewage treatment. The company will make every effort to build a water treatment agent production and R&D division with the Qingshuiyuan headquarters as the core, municipal sewage project investment, construction, operation, sewage treatment plant upgrade, garbage leachate treatment, river treatment sector with Tongsheng Environmental Protection Company as the core, industrial sewage, desulfurization wastewater zero discharge project and solid waste treatment sector with Qingshuiyuan (Shanghai) Environmental Technology Co., Ltd. as the core, and a water treatment agent terminal application section with Ande Technology as the core. The four major sectors share resources and support each other, and go hand in hand. The business performance of the water treatment agent industry is average. Revenue from water treatment products in the first half of this year was 120 million yuan, down 27.82% year on year, gross margin increased 3.69 percentage points to 26.99%, revenue from chloromethane products was 29.6 million yuan, up 52.25% year on year, and gross margin decreased by 3.17 percentage points to 34.82%. Expense rate growth was manageable during the period, and profitability increased, but asset turnover declined. The company's expenses rate for the period was generally manageable. The fee rate for the first half of this year was 17.31%, down 3.15 percentage points from the first quarterly report. Due to the merger of environmental protection businesses, the gross margin was over 40%, so the gross profit margin for the first half of this year was 30.03%, better than 23.17% in the same period last year, and the net profit margin was 9.24%, better than 8.20% in the same period last year. This is due to the relatively good profitability of the consolidated business. However, the company's asset turnover rate dropped from 0.41 times to 0.19 times. The main reason is that the revenue growth rate is not large enough. It is expected that in the future, with the introduction of new production capacity and business development, the total asset turnover ratio is expected to increase. The two subsidiaries joined together to contribute to the annual increase in performance. After completing the acquisition of Henan Tongsheng Environmental Engineering Co., Ltd. in 2016, the company initially established an integrated water treatment service model. Dongsheng Environmental is an enterprise with comprehensive qualifications and good growth in the field of domestic water environment services in Henan Province. The Yichuan No. 2 Sewage Treatment Plant was the first underground sewage treatment plant in Henan Province. The original shareholders' performance promise was that the net profit withheld from non-return mother was not less than 35.2 million yuan, 56 million yuan, and 66.8 million yuan in 2016-2018. In 2016, Dongsheng Environmental was consolidated in July, contributing 253.14,800 yuan to the net profit of listed companies, and completed the performance assessment target in 2016. In the first half of this year, Henan Tongsheng achieved operating income of 61.9076 million yuan and net profit of 17.737 million yuan. In January 2017, the company acquired 51% of Shaanxi Ande Technology's shares. In July 2017, the company acquired the remaining 49% of the shares. Among them, the original shareholders' performance promise was that the lower value of net profit attributable to shareholders of the parent company before and after deducting non-recurring profit and loss in 2017-2019 was not less than 23 million, 27 million, or 32 million. This performance commitment standard is higher than the previous performance commitment standard when 51% of the shares were acquired. In the first half of this year, Shaanxi contributed 456.716 million yuan in revenue and 7.7578 million yuan in net profit. The fund-raising project was put into operation at the end of this year, contributing to future performance growth. The company's 30,000 ton water treatment product fund-raising project is expected to be completed in December this year, and the company's production capacity will increase by 50%. It is expected that its production capacity will slowly be released, contributing to the next 3 years of performance. Profit forecasting and investment advice. EPS is expected to be 0.32 yuan, 0.36 yuan, and 0.42 yuan respectively in 2017-2019, giving a “gain” rating. Risk warning: the risk that the performance of the merger and acquisition targets will fall short of expectations, the risk of declining market demand, the risk of increased competition in the water treatment agent industry, and the risk that the fund-raising project will not meet expectations.