Recently, we have conducted a survey on the fresh environment. According to the investigation and understanding, at present, the development of the traditional flue gas treatment business in the fresh environment is stable, the development of the non-electric treatment market is relatively slow, the volume of EPC business is expected to be the same as that in 2017 or slightly decreased, and the number of operating projects will continue to grow. In the future, the development of the company, on the one hand, will continue to expand the volume of operational business, on the other hand, it will promote business diversification, regional integrated environmental services and other new business development, but the new business will not make a significant contribution to performance in the short term and need to be nurtured for a long time. With regard to the long-term growth point, we will continue to follow up and maintain the "prudent recommendation".

Traditional business development: EPC business is generally stable, non-electricity market development is slow; BOT business due to the rising cost of capital to take the initiative to slow down the pace of expansion, but the future operation volume will continue to grow. The company's traditional smoke control EPC business this year is generally the same as last year. Among them, the flue gas treatment projects of thermal power plants are mainly small and medium-sized units, and the super-net transformation of large units is basically completed, while the market development speed of the non-electricity industry is relatively slow, with orders accounting for about 20%. BOT business is still the focus of sustainable development, taking the initiative to slow down the expansion progress due to the high cost of capital in the short term, but in the long run, the annual operation volume will continue to grow. The income of the company's operating projects is good from 2017 to 2018, and the net operating profit in 2017 is about 400 million. It will still grow in 2018, and the operating business is expected to reach 400 million to 500 million net profit.

New business development direction: from a single engineering service to a regional integrated environmental service. The company's future business development direction, one is to extend from engineering to operational services, and the other is to expand from single engineering services to regional integrated environmental services. In the new business direction, the company will not easily enter the field of PPP, but will consider to set foot in the field of monitoring business, and then combined with the company's years of experience in pollution control, to become a regional integrated environmental service provider. In the short term, the new business will not be obvious to the company's profits, but it will be a long-term direction, and it will take 5-8 years to do.

The impact of industry changes on the development of the company. (1) the deleveraging of central and state-owned enterprises in the power industry creates opportunities for companies to undertake more third-party BOT projects: in 2018, under the background of deleveraging, power companies also carried out related work on leverage reduction and mixing, and more power companies are willing to sell project assets for desulphurization and denitrification operations to third parties, thus creating opportunities for professional desulphurization and denitrification operators such as clean environment to undertake BOT projects. (2) to the "across-the-board" era, industrial environmental protection governance will really benefit: when "across-the-board", due to the radical environmental protection production restriction policy, the willingness of large and small enterprises to install environmental protection treatment facilities will be affected. Non-TVU enterprises are also in a wait-and-see state for environmental governance investment, so the overall development of smoke control market in non-electricity industry is slow. In the future, after abolishing the across-the-board shutdown and production restrictions, the demand for industrial enterprises to invest in environmental governance can really be stimulated.

Summary and profit forecast. At present, the development of traditional flue gas treatment business in fresh environment is stable, and the development of non-electric treatment market is relatively slow. The volume of EPC business is expected to be the same or slightly lower than that in 2017, and the number of operating projects will continue to grow. In the future, the development of the company, on the one hand, will continue to expand the volume of operational business, on the other hand, it will promote business diversification, regional integrated environmental services and other new business development, but the new business will not make a significant contribution to performance in the short term and need to be nurtured for a long time. We expect the company to achieve a net profit of 600 million yuan and 660 million yuan respectively from 2018 to 2019. We will continue to follow up on the growth points and maintain the "prudent recommendation-A" rating.

Risk hint: the risk of the decline of gross profit margin, the cancellation or reduction of desulphurization and denitrification electricity price affects operating income.