Incident: The company released its 2018 semi-annual report on the evening of August 27: During the reporting period, the company achieved revenue of 402 million yuan, a year-on-year increase of 27.40%, achieved net profit attributable to shareholders of listed companies of 104.243 million yuan, a year-on-year decrease of 13.02%, and realized net profit attributable to shareholders of listed companies deducted from non-recurring profits and losses of 105.1443 million yuan, a year-on-year decrease of 12.03%. Our comments on this are as follows: Investment highlights: BT project repurchases affected performance, and the engineering contracting business grew significantly in the first half of 2018 The company achieved revenue of 402 million yuan, an increase of 27.40% over the previous year, and achieved net profit attributable to shareholders of listed companies of 104.243 million yuan, a year-on-year decrease of 13.02%, and net profit after deduction of 105.1443 million yuan, a year-on-year decrease of 12.03%. It is within the range of 8.37%-14.20% of the performance forecast, which is in line with market expectations. The main reason for the decline in net profit was due to the company's BT project entering the end of the repurchase period, and the repurchase interest income confirmed by the BT project decreased year-on-year. As a result, the subsidiary Changchun Pengyao Water's revenue for the reporting period decreased by 31.7035 million yuan compared to last year, and net profit decreased by 24.0239 million yuan. By business: sewage treatment business achieved revenue of 115 million yuan, up 35.04% year on year (gross profit ratio of 57.45%, year on year decrease of 7.39 pct); engineering contracting achieved revenue of 122 million yuan, up 414.24% year on year (gross profit margin 26.59%, down 29.84 pct year on year); water supply business achieved revenue of 57 million yuan, down 22.22% year on year (gross profit margin 72.66%, down 4.94 pct year on year); environmental protection equipment sales business achieved revenue of 56 million yuan, up 44.98% year on year (Gross profit margin of 24%, up 2.83 pct year over year). Interest income was 50,150 million yuan, a year-on-year decrease of 43.90%. As a result, the company's overall gross margin level fell from 71.90% to 50.83%. This is due to the overall decline in the gross margin of the company's business. In terms of expenses for the period: Sales/management/financial expenses were 804/3222/33.31 million yuan respectively, up 13.33%/15.01%/8.25% year on year. The company's net operating cash flow was -0.3 billion yuan (36 million in the same period last year), mainly due to BOT project investment. The sewage business expanded steadily, and cost control was outstanding. The company's sewage business grew steadily in the first half of the year: during the reporting period, the company added 4 new engineering orders, with a total amount of 46.73 million yuan, and on-hand orders at the end of the period. The company is currently constructing 7 water engineering projects, entering the project warranty period and settlement period. At the same time, it is actively promoting investment and construction of environmental equipment manufacturing parks to become a leader in the environmental equipment manufacturing industry. Currently, the company's environmental water treatment project has a daily treatment capacity of more than 50,000 tons. Coupled with the advantages of the industrial chain and good management experience, the company's sewage treatment project cost control capability is outstanding. The average water treatment cost of the company's sewage treatment projects is less than 0.6 yuan/ton, while the average cost of sewage treatment along the eastern coast reached 1.20 yuan/ton, the middle reaches the Yellow River and the northeast region reached more than 0.9 yuan/ton, and 0.63 yuan/ton and 0.62 yuan/ton along the middle and southern coasts of the Yangtze River, respectively, which is lower than the national average. Actively expanding the solid waste business. While based on the sewage treatment business, the company is also actively expanding emerging businesses such as solid waste and ecology, using organic solid waste treatment and recycling to produce organic fertilizer using straw, livestock and poultry manure, sludge, etc., as the main development direction. It has joined forces with Nanjing Agricultural University and Jiangsu Zhongyi (technical support) and Liangye Technology (equipment and operation experience) to enter the organic solid waste recycling application field. Currently, it has signed organic production of 500,000 tons per year in Xinjiang (100,000 tons), Nong'an (300,000 tons), and Bozhou (100,000 tons) The fertilizer project, at present Environmental protection inspections are becoming stricter. At the stage where surface source pollution control in rural areas is just beginning, the organic solid waste resource utilization market is making a big difference. In terms of solid waste, the company currently has two sludge projects in Changchun and Jingdezhen. In the first half of the year, the Changchun sludge project continued to be overloaded, and more than 100,000 tons of sludge have been disposed of. The solid waste and organic fertilizer business has become a new highlight of the company's performance. Profit forecast and investment rating: Maintain the company's “gain” rating. The company's 2018-2020 EPS is expected to be 0.49, 0.58, and 0.65 yuan, respectively, corresponding to the current share price PE of 30, 26, and 23 times. The company is a newly listed sub-IPO, and the valuation is a bit high, but we are optimistic about the development prospects of the organic solid waste industry and maintain the company's “gain” rating. Risk warning: risk of project acquisition and progress falling short of expectations; risk of a sharp increase in accounts receivable; risk of organic solid waste recycling projects progressing slowly; risk of falling short of expectations in organic fertilizer prices and sales; and macroeconomic downside risks.