Event: according to the 2018 interim report, H1 achieved business income of 4.94 billion yuan in 2018, an increase of 76.7% over the same period last year, and its net profit was 385 million yuan, an increase of 42.9% EPS0.17 yuan over the same period last year.

The order on hand is full, and the performance maintains high growth: the company's environmental protection business increased by 147.9% in the first half of the year compared with the same period last year, driving the overall performance in the first half of the year up 76.7% from the same period last year. Of this total, the operating income in the second quarter was 3.64 billion yuan, an increase of 79.3% over the same period last year. In the second quarter, the net profit attributed to the parent company was 460 million yuan, an increase of 67.3% over the same period last year. The company currently has a manual engineering order of 52.06 billion yuan, which is 6.4 times of the revenue in 2017. in the second half of 2018, under the more active financial policy of the government, the company's project will accelerate the landing, and the annual performance will maintain rapid growth.

During the period, the cost dragged down the net profit, and the cash flow needed to be improved: the company's 2018H1 gross profit margin was 26.2%, up 0.7% from the same period last year, mainly due to the increase in the proportion of ecological and environmental protection projects, which led to the increase in the gross profit margin of the garden business; the net profit margin was 7.8%, down 1.7% from the same period last year. During the period, the expense rate was 18.0%, an increase of 1.4% over the same period last year. Among them, the company set up several regional centers to improve the national market layout, and the related personnel increased significantly, resulting in a 0.6% increase in sales expense rate compared with the same period last year. At the same time, the expansion of business scale and the substantial increase in bank loans led to a 1.2% increase in financial fees and a 0.4% decrease in management expense rate. The net increase in cash and cash equivalents was-990 million yuan, down sharply from 870 million yuan in the same period last year, mainly due to a decrease in BT project rebates and a substantial increase in PPP project investment funds paid by the company, as well as a significant increase in debt repayment in the current period.

With the implementation of the multi-regional strategic layout, the business in Central China, East China and Northwest China is growing rapidly: in 2018H1, the proportion of revenue in Southwest China, South China, Northwest China, Central China and East China is 27.9%, 24.0%, 13.3%, 12.9% and 12.0% respectively. Benefiting from sufficient orders and steady progress of projects in the markets of Central, East and Northwest China, income in Central China, East China and Northwest China increased by 615.9%, 230.2% and 92.0% respectively. In the future, while steadily developing the market business in South China, the company will continue to actively develop the markets in Central and East China.

Benefiting from the loose expectations of the environment, PPP travel and rural construction will become new drivers of performance: we believe that the eco-environmental protection industry will benefit from this round of infrastructure deficiencies, and the company will benefit greatly as a leading company in the eco-environmental protection industry. The company's eco-environmental construction and operation business extends from the traditional landscape and environmental protection to the fields of eco-tourism and agriculture, forming a complete eco-industrial chain composed of four business combinations. Among them, the company's PPP tourism operation project, Shandong Binzhou Xizhifang Yellow River Ancient Village, won the best rural tourism project award in China, which is the benchmark project in the industry. at present, the company has opened 3 cultural tourism projects, is planning to build 4 projects, and is following up dozens of projects. During the reporting period, the company won the bid for the PPP project of ecological restoration of the ancient Yellow River and transformation of medium-and low-yield farmland in Suining County, Jiangsu Province, which is the earliest comprehensive rural three-industry integration project in the industry, indicating that the company has taken the lead in entering the whole industrial chain of ecological agriculture. Policies such as beautiful China and rural revitalization will bring new momentum to the company's performance growth.

Profit forecast and rating: from 2018 to 2020, the EPS is expected to be 0.46,0.71,0.96 yuan respectively, corresponding to 12 times, 8 times and 6 times of PE, giving the "overweight" rating for the first time.

Risk hint: the risk of business development falling short of expectations, the recovery of receivables and the deterioration of cash flow.