Matters:

The Central Committee of the Communist Party of China and the State Council issued a number of opinions on adhering to the priority development of agriculture and rural areas and doing a good job in the “three peasants”, putting forward the need to insist on solving the “three peasants” issue as the top priority of the whole Party's work and comprehensively promote rural revitalization.

Guoxin Environmental Protection's view: The current administration is paying particular attention to rural work. We expect rural construction to be the core direction of infrastructure repair shortfalls this year, and that support from the central government and financial authorities will increase significantly. The company is based on the “Three Farmers and Three Waters” strategy, which is a genuine rural revitalization target. The management has successfully transitioned through more than a year of integration. The strategy is clear, the overall business situation is good, and profits are expected to achieve high growth. We expect the company's 2018-2020 results to be 122/23/3.7 billion yuan respectively, and the corresponding PE is 35/18/11X, purchase rating.

Comments:

The current government is paying particular attention to rural work, and rural environmental remediation is the government's next major investment direction to make up for shortcomings.

The current government is paying particular attention to rural work. In the current situation where the downward pressure on the economy is increasing and the external environment is complicated, it is particularly important to do a good job in the “three peasants”. On October 31, 2018, the State Council issued the “Guiding Opinions on Maintaining Efforts to Make Up for Shortfalls in the Infrastructure Sector”, which proposes to maintain efforts to make up for shortfalls in the infrastructure sector and further improve infrastructure and public services. Ecological environment and agriculture and rural areas are key directions for repairing shortfalls. In 2018, the Central Committee of the Communist Party of China and the State Council reviewed, approved and issued a series of policies for coordinated development in urban and rural regions, such as the “Strategic Plan for Rural Revitalization (2018-2022)”, the “Action Plan for the Rehabilitation and Upgrading of Tourism Infrastructure in Deeply Impoverished Areas such as the “Three Regions and Three States”, and the “Three-Year Action Plan for Rural Habitat Environment Remediation”. Rural revitalization has risen to a new level of national strategy.

This time, the “Opinion” was issued in response to General Secretary Xi's request at the Central Rural Work Conference at the end of '18, and specified specific goals and measures. We expect rural construction to be the core direction of infrastructure to make up for shortfalls this year, and that support from the central government and financial authorities will increase significantly.

The “Opinion” calls for further strengthening farmland water conservancy construction and completing high-standard farmland construction tasks; carrying out three-year actions to rectify the rural habitat environment, with special financial support arranged through investment within the central budget; promoting rural drinking water safety consolidation and upgrading projects; promoting rural water environment management; and deepening rural land system reform, etc., all of which will have a positive impact on the development of the next step in water conservation in Dayu.

The company's orders have advanced in leaps and bounds

As a traditional farmland water saving faucet enterprise, after re-establishing the “three agriculture and three waters” strategy for rural water conservation, sewage and water supply, the company opened up market space with its rich rural business experience. With the government's strong desire for rural environmental remediation, the company's orders have advanced in leaps and bounds, which is the most direct benefit target in rural revitalization.

The Tianjin Wuqing rural sewage project of 1.46 billion yuan in mid-2018 is one of the largest rural sewage treatment projects in China. The project bank loan is already in place. Subsequently, major sewage and water supply projects such as Jiuquan and Suzhou were signed one after another. The demonstration results of the company's traditional farmland water saving project in Yunnan have been good, and it has also entered a rapid promotion period. On February 14, 2019, the company signed the “PPP Project Contract for the Construction of a Modern Ecological Irrigation Area in Litong District of Wuzhong City”, with a total investment of 1.4 billion yuan. The construction includes efficient water-saving irrigation projects, information technology construction projects, integrated measurement and control transformation and water rights trading pilot projects. The construction period is 5 years and the operation period is 22 years.

Investment advice: If high-quality targets for rural construction are scarce, continue to recommend companies as core targets for rural construction, they are scarce. The company's management has successfully transitioned through more than a year of integration. The strategy is clear, the overall business situation is good, and profits are expected to achieve high growth. We expect the company's 2018-2020 results to be 122/23/3.7 billion yuan respectively, and the corresponding PE is 35/18/11X, purchase rating.

Risk warning: Continued funding constraints caused the project to start or fall short of expectations