Incident: The company's recent announcement: The board of directors of the company reviewed and passed the “Proposal to Acquire 51% of China Railway Urban and Rural Environmental Protection Engineering Co., Ltd.” and agreed that the company would acquire 51% of China Railway Environmental Protection's shares and increase its capital, including a share transfer price of 47,391.43 million yuan and a capital increase of 20.4 million yuan. Our comments on this are as follows: Key investment points: Acquiring China Railway Environmental Protection to improve the general contracting capacity of the project, improve the industrial chain and enhance performance, transfer 51% of the total shares of the underlying company to the company at the price of net assets. The share transfer amount was 47,391 million yuan. At the same time, the company increased its capital by 20.4 million yuan (13.3894 million yuan is included in the registered capital, and 7.006 million yuan is included in the capital company). After the equity transfer and capital increase were completed, the company held 51% of China Railway Environmental Protection's shares. China Railway Environmental Protection, formerly known as China Railway Tenth Bureau Group Tenth Engineering Co., Ltd., is a large-scale construction enterprise with comprehensive construction capabilities. It has 8 qualifications, including Municipal Public Works Construction General Contracting Level 1, and Highway Engineering General Contracting Level 2. It is mainly engaged in municipal engineering, water supply and drainage engineering, highway engineering, railway engineering, mechanical and electrical equipment installation engineering construction, and urban underground pipeline network surveying and mapping. China Railway's environmental protection construction field is spread all over the country, and it has constructed municipal projects in many large and medium-sized cities. A total of 5 million tons of water purification plants and 3 million tons of sewage treatment plants have been built. It is an outstanding construction enterprise in Jiangsu Province. Through the acquisition of China Railway Environmental Protection, the company's qualifications have been upgraded, which can enhance the company's general contracting capabilities in municipal public works and other related fields, improve the company's industrial chain, and help obtain more orders. On the other hand, the target company promised that in addition to the project expenses and performance granted by the company, the net profit completed independently in 2018-2020 will not be less than 800/10/12 million yuan, respectively, which can enhance the company's performance to a certain extent. The sewage business has been expanding steadily, and the solid waste business has added new highlights. In the first half of the year, the company added 4 new engineering orders, with a total amount of 46.73 million yuan, and on-hand orders of 232 million yuan 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 protection equipment manufacturing parks to become a leader in the environmental protection equipment manufacturing industry. In addition, the company plans to invest 300 million yuan in investment funds with the intention of investing in other environmental protection industries and continuously consolidating the sewage 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 resource utilization 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 holding Lianye Technology (equipment and operation experience) to enter the organic solid waste recycling application field. Currently, it has signed organic fertilizer projects with an annual output of 500,000 tons in Xinjiang (100,000 tons), and Bozhou (100,000 tons). Strict control of surface source pollution in rural areas In its infancy, the organic solid waste resource utilization market made 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. Without considering the impact of this acquisition on the company's performance, 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 26, 22, and 20 times, maintaining the company's “gain” rating. Risk warning: The acquisition process falls short of expectations, the risk of project acquisition and progress falling short of expectations, the risk of a sharp increase in accounts receivable, the risk of organic solid waste recycling projects progressing slowly, the risk that organic fertilizer prices and sales fall short of expectations, and the risk of macroeconomic downturn.