Key elements of the report: Sand Environment's compound growth rate in the past 4 years has reached 45%, and the 14-year performance has achieved a high growth rate of 63%. The company continues to explore new businesses in the field of solid waste, and has successfully expanded businesses such as integrated sanitation and home appliance dismantling in 2014. The company is also actively exploring fields such as meal expenses, soil restoration, and sludge disposal, and is actively exploring various cooperation models such as PPP in terms of project models. The company currently has many orders and projects under construction, and has a high foundation and guarantee for future growth, giving the company a “buy” investment rating. Event: The company published its 2014 annual report. In 2014, Sander Environmental achieved operating income of 4.374 billion yuan, an increase of 62.99% over the same period of the previous year; realized operating profit of 926 million yuan, an increase of 38.08% over the same period of the previous year; and realized net profit of 795 million yuan, net profit attributable to owners of the parent company of 804 million yuan, up 35.07% and 37.28% respectively over the same period last year. The company plans to distribute a dividend of 1.0 yuan (tax included) for every 10 shares. Comment: 1. The company's performance achieved a rapid growth of 63%, mainly due to a sharp increase in solid waste-related business. The rapid growth of the solid waste business remains the main driving force for high performance growth. Benefiting from the original project entering the peak construction period and the increase in new projects, the company's municipal construction business revenue was 3.107 billion yuan, an increase of 53.94% over the previous year, and the gross profit margin was 35.12%, an increase of 0.8 percentage points. The solid waste treatment business revenue was 404 million yuan, a relatively rapid increase over the previous year, but the gross margin was only 5.7%. The sewage and water supply business was relatively stable, with a gross profit margin of 33.46%, a decline of about 3.9 percentage points. 2. The comprehensive gross margin is stable at 35%, and is expected to remain stable in the future. The company's performance structure has been further diversified. The gross margin of the new sanitation business is lower than the average gross profit margin, yet municipal construction, which accounts for the largest share, still has a stable high gross profit margin. According to the company's ongoing orders and construction projects, municipal construction will still be the company's main performance component for 15 years, and its overall gross margin is expected to remain stable. The company's net interest rate level was reduced by 3.76% due to the increase in the three fees, and the management expenses and financial expenses in the three fees increased a lot. 3. The environmental protection industry is expected to develop greatly in 15 years due to policy implementation. The company's business transformation is in line with industry trends and is worth looking forward to. Fifteen years will be a year of environmental protection development. The new environmental protection law will be implemented, and documents related to environmental pollution control such as “Opinions on Implementing Third-Party Control of Environmental Pollution” have been issued one after another, indicating that the idea of “who pollutes, who treats” has changed to a new model of “who pollutes and who pays”. The Fourth Plenary Session of the 18th Central Committee also clearly proposed the need to vigorously innovate financing methods and actively promote the government-social capital cooperation (PPP) model. It is foreseeable that the introduction of the PPP model into the fields of solid waste treatment, sewage treatment, and public facilities services related to environmental protection will achieve a new situation of innovation and development of environmental protection investment and financing systems. The implementation of these policies is expected to promote significant development of the environmental protection industry in 15 years. The company actively undertakes strategic transformation based on its resource advantages. The company is building four major business platform strategies for solid waste, water, sanitation, and renewable resources to promote smart sanitation. The company continues to consolidate its advantages in the solid waste field, explore and expand into the integrated field of sanitation, and obtained an annual contract of about 300 million yuan for sanitation cleaning projects. The company's household appliance dismantling business layout in the field of renewable resources is beginning to take shape and become a powerful participant in the renewable resources field. 4. Profit forecast and valuation. The company's 2015-2016 operating income is estimated to be 6336.73 million yuan and 9036.70 million yuan respectively, net profit attributable to shareholders of the parent company is 1095.86 million yuan and 1547.72 million yuan, and earnings per share are 1.30 yuan and 1.84 million yuan respectively. The price-earnings ratio corresponding to the stock price on 2015/3/16 (28.72 yuan) was 21.49 times and 15.21 times, respectively. The company is in a leading position in the solid waste field, and its business continues to expand, and growth can be expected. We maintain the company's “buy” investment rating. 5. Risk warning. (1) Policy risks of poor implementation of environmental policies by local governments; (2) declining prices of products and services due to intense market competition; (3) systemic risk of valuation.