Core view Qingshuiyuan is a leading domestic manufacturer of industrial water agents. After listing, it will build an industrial platform for the entire industry chain. The future business will include the production and sale of water treatment agents, industrial water treatment system solutions, municipal and industrial sewage treatment operations, and comprehensive water environment management. The company's main business picked up sharply in 2017, and the initial industrial layout was completed, opening up the entire industrial water treatment industry chain. The synergy effects of various sectors were obvious, and the ability to take orders improved markedly. The company's 2017 performance report shows that the company achieved net profit of 113 million yuan, a sharp increase of 150% over the previous year, welcomed the favorable policy and entered a stage of rapid development. We expect the company's 2017-19 net profit CAGR to be 51%, covering the purchase rating for the first time, with a target price of 19.74-21.62 (target PE 21-23x for 2018). The main business is rooted upstream (pharmaceuticals): price rise+capacity expansion. The recovery was significant in 2017 due to environmental inspections and supply-side reforms, and the supply and demand pattern of the water treatment agent industry changed. The company's profit on water treatment agents in 2017 is expected to return to the best level after listing, and the boom is expected to continue for 18 years. The raised production capacity of 30,000 tons of water treatment agents (originally 60,000 tons, an increase of 50%) reached production at the end of 2017, and the company's performance is expected to continue to improve as production capacity continues to be released. We expect that the company's water treatment agent business (Qingshui Source Itself+Ande Technology) will contribute more than 60 million yuan in stable operating cash flow every year starting in 2018. Midstream layout (construction+operation and maintenance): The layout of the entire industry chain was completed, and joint efforts were made to complete the acquisition of 100% of Dongsheng Environmental's shares, 100% of Ande Technology's shares, and 55% of Zhongxu Environmental Construction. 1. The synergy effect of the entire industry chain is obvious: 1) The main water treatment agent business is mature, providing the company with stable cash flow; 2) Ande Technology extends the water treatment agent business downstream to expand pharmaceutical blending and systematic solutions; 3) Dongsheng Environment has extensive experience in industrial water and municipal sewage operations; 4) Zhongxu Environmental Construction has dual level qualifications for municipal construction and housing construction general contracting, and will be responsible for comprehensive water environment treatment business (watershed treatment, black and smelly water treatment, etc.). 2. Regional collaboration is obvious: Ande Technology is based in Shaanxi, while vigorously expanding the Belt and Road Initiative. Dongsheng Environmental and Zhongxu Environmental Construction have outstanding local advantages in Henan and Anhui, respectively. In the future, through regional collaboration, they will open up space for the company to grow. Industrial water is gaining momentum, and the market space is broad. China's water treatment chemicals market is expected to grow steadily in the 13th Five-Year Plan. According to Marketsand Markets estimates, it will reach 12 billion yuan in 2020, and the CAGR is 5.7% in 2015-20. We expect the annual operating market space of industrial water to exceed 60 billion yuan, and the proportion of third-party operations will increase significantly. It is conservatively estimated that the current market space for comprehensive management PPP projects is expected to exceed 290 billion yuan. The merger and acquisition target environment and Zhongxu Environmental Construction have broad scope for future development, and the synergy effect is obvious, which is expected to lead the company to achieve a breakthrough in market capitalization. The target price of 19.74-21.62 yuan was covered for the first time, giving a “buy” rating. The company's main business recovered in 2017 and completed the layout of the entire industry chain. The company had obvious synergy effects and officially entered a period of rapid growth. We expect EPS in 2017-19 to be 0.52/0.94/1.18 yuan/share, respectively. The company's current stock price corresponds to 29x/16x/13x P/E in 2017-19, and the valuation is at its lowest level since June 2015. Referring to the 2018 average P/E of listed companies in the same industry, we gave the company a target P/E of 21-23x in 2018, corresponding to a target price of 19.74-21.62 yuan/share. Risk warning: Performance promises for mergers and acquisitions have not been fulfilled; the rapid expansion of investment projects has worsened cash flow.