Event: Released the 2018 mid-year report. The first half of the year achieved revenue of 766 million yuan, an increase of 149.11% over the previous year; net profit of the mother was 109 million yuan, an increase of 284.00% over the previous year. Comment: The merger effect plus the price of water treatment drugs has risen sharply, and performance has increased dramatically. The first half of the year achieved revenue of 766 million yuan, an increase of 149.11% over the previous year; net profit of the mother was 109 million yuan, an increase of 284% over the previous year. Tongsheng Environment, Ande Technology, and Zhongxu Environmental achieved revenue of 71 million, 59 million, and 261 million respectively, and net profit of 17 million, 11 million, and 41 million yuan. The increase in performance comes from: ① The merger effect: 55% of Zhongxu Environment's shares began merging at the end of 2017, and Ande Technology's 49% shares began merging in August 2017, and the merger effect led to a performance increase of about 28 million yuan, accounting for 26% of the total net profit; ② the volume and price of water treatment agents and derivatives rose sharply, and the parent company's caliber water treatment agent sector achieved revenue of 371 million yuan, an increase of 82.76% over the previous year; achieved net profit of 63 million yuan, an increase of 481% over the previous year. Cash flow and period expenses were affected by the combination of cash flow and period expenses. Judging from the cash flow statement, Zhongxu Environmental's net operating cash flow for the first half of the year was -168 million yuan, which dragged down the net operating cash flow of listed companies in the first half of the year to -106 million yuan. In addition, in the first half of the year, the company's sales expenses, management expenses, and financial expenses increased by 51.02%, 57.74%, and 800.16%, respectively. The sharp increase in financial expenses is mainly due to rising capital costs and a merger between China and Xu's environment. Currently, the company's balance ratio is 55.56%, and the monetary capital in hand is 175 million yuan. The overall risk is manageable. In the first half of the year, the company added 6 new EPC projects with a contract value of 251 million yuan; 9 ongoing EPC projects with unconfirmed revenue of 103 million yuan; 2 ongoing BOT projects were under construction with an uncompleted investment of 152 million yuan; and 9 BOT projects were in operation. Recently, the company has won new bids for the integrated sanitation project in Yichuan County, the supporting transfer plant project for the Jiyuan landfill and incineration project, and the Anhui Green Building Industrial Park project. There are plenty of environmental protection orders, providing a foundation for the company's future business development. It is planned to issue 490 million convertible bonds and expand 180,000 tons of water treatment agent production capacity. In the first half of the year, the company plans to issue 490 million convertible bonds to invest in a water treatment agent expansion project with an annual output of 180,000 tons. It has now passed the shareholders' meeting. The company is currently the only A-share water treatment pharmaceutical company. Currently, the water treatment agent production capacity is 90,000 tons/year. After this expansion project reaches the production capacity of the company will reach 270,000 tons/day, and the company's position in the industry will be strengthened. Profit forecasting and investment advice The company's current stock price is lower than the 2016 launch price, and PE-TTM and PB are both at a low level. It is estimated that the company can achieve net profit of 258 million and 348 million in 2018-2020, corresponding to the current stock price 13 times and 10 times. The undervaluation is highly flexible, giving it a “highly recommended” rating. Risk warning: Project progress is slower than expected, and capital costs are rising further