It was announced on the evening of May 22 that it is proposed to issue convertible bonds to raise capital to expand the production of 180,000 tons of water treatment agent Qingshuiyuan. The proposed issuance of convertible bonds will raise no more than 490 million yuan, of which 430 million yuan will be used for a project to expand production of 180,000 tons of water treatment agents per year. If the production expansion plan is successfully implemented, the company's water treatment agent production capacity will increase from the current 90,000 tons to 270,000 tons, becoming the largest water treatment agent manufacturer in China, and its bargaining power is expected to increase. Benefiting from the optimization of the supply and demand structure, prices of water treatment agents in the main business rose sharply in the fourth quarter of '17 and have remained high since the beginning of '18. At the end of '17, the company's water treatment agent production capacity expanded by 50% to 90,000 tons. We estimate that 18Q1 water treatment agents contributed 30 million yuan in profit, and the annual profit contribution is expected to exceed 100 million yuan. We believe that this production expansion plan reflects the company's determination to increase its market share. Net profit for 2018-20 is expected to be 2.4/29/350 million yuan respectively, maintaining the “buy” rating. Convertible bonds help ease financial pressure and enhance upstream core competitiveness. Currently, the company plans to issue no more than 490 million yuan of convertible bonds, of which 430 million yuan will be used for 180,000 tons of water treatment agent production expansion projects, and 60 million yuan will supplement working capital. In 18Q1, the company's balance ratio was 55.6%, so there is plenty of room for improvement. Supply-side reforms in '17, the operating conditions of industrial enterprises improved, and demand for water treatment agents increased dramatically. Combined with environmental protection inspections and the shutdown of non-compliant water treatment agent manufacturers, water treatment agent prosperity improved markedly in '17 and continued to this day. The construction period of the expansion project is 3 years, the internal rate of return is 22.46%, and the payback period is only 5.88 years (including the construction period). Once production is fully put into operation, we expect the expanded portion to contribute 150 million dollars in net profit per year (130% of net profit in '17), and the company's profitability will increase significantly. The proposed 60 million working capital will ease financial pressure and support ongoing and potential projects. High growth and undervaluation, maintaining the “buy” rating company to complete the layout of the entire industrial water industry chain (upstream pharmaceuticals+midstream engineering+downstream operation/operation and maintenance) by the end of 17. Performance grew rapidly in 18Q1. In April, it was announced that a consortium formed with the subsidiary Zhongxu Environmental won the bid for a garbage factory PPP project with a total investment of 337 million yuan, and the synergy of the entire industry chain is gradually being reflected. We believe that this expansion plan will help enhance the company's core competitiveness. Regardless of contributions from fund-raising projects, we expect the main business water treatment agents to contribute more than 100 million yuan in profits in 2018, and the three mergers and acquisitions can achieve performance promises. The estimated net profit for 2018-20 is 2.4/29/350 million yuan, and the corresponding EPS is 1.11/1.34/1.61 yuan, respectively, maintaining the “buy” rating, with a target price of 22.20-23.31 yuan. Risk warning: The performance promise for the subject of mergers and acquisitions has not been fulfilled; the rapid expansion of investment projects has worsened cash flow; and the progress of the production expansion plan is lower than expected.