Incident: Clean Environment (002573) released its 2018 three-quarter report, achieving operating income of 3.266 billion yuan, up 4.24% year on year; net profit to mother of 495 million yuan, down 19.84% year on year; net profit after deduction of 495 million yuan, down 18.96% year on year. Comment: Gross margin declined, financial expenses increased, and Q3 performance declined significantly. The company achieved revenue of 969 million yuan in the 3rd quarter, a year-on-year decrease of 39%, and net profit to mother of 142 million yuan, a year-on-year decrease of 53%. Gross margin declined significantly in the first three quarters, to 29.06%, down 5.1 percentage points year on year. The main reason was that costs increased rapidly due to market competition and rising prices of labor and raw materials, etc., and gross margin fluctuated greatly in the EPC engineering business. Sales expenses and administrative expenses decreased by 21% and 14%, respectively, compared with the previous year. However, due to changes in the financing environment, financial costs increased significantly, and financial expenses increased 46% year over year. The cost rate for the period was 12.6%, a slight increase of 0.3 percentage points over the previous year. The reporting period responded to an increase in accounts receivable, and the net cash flow from operating activities was 792 million yuan, an increase of 1988% over the previous year. The company predicts net profit of $521-717 million in 2018, a year-on-year increase of -20% to 10%. It is expected that non-electric flue gas treatment will continue to advance to drive an increase in business volume. Large units in the thermal power industry have gradually completed the task of ultra-low emission transformation. Next, the main focus is on the management and transformation of small and medium-sized units and self-owned power plants. In the non-electricity sector, in June 2017, the Ministry of Environmental Protection drastically raised the special emission standards for air pollutants in industries such as steel sintering and pellets, and increased the special emission limits for ceramics, flat glass and other industries. With the gradual implementation of the new standards, flue gas upgrading and transformation in various industrial industries in the non-electricity sector will usher in new growth space. Due to technical differences between the non-electricity sector and the traditional thermal power sector, the company needs to do a lot of work in the non-electricity sector control technology routes. Currently, the company is actively promoting the construction of demonstration projects and customer docking in various segments of the non-electrical sector, including steel, coking, non-ferrous, petrochemical, etc. The future release of the non-electric flue gas treatment market is conducive to the continuous expansion of the company's business, but it requires the accumulation of technology and experience in the short term. The operating business is relatively stable. Currently, the company has an operating service scale of more than 26 million kilowatts of installed capacity in the thermal power industry, accounting for about 3% of the total market share, ranking second in the entire industry. The BOT operation business is a continuous operation project. The revenue and gross margin are relatively stable. The continuous stability and increase in the share of the operating business is conducive to the stability of the company's future performance. Investment advice: Maintain a “Cautious Recommendation” rating. EPS is expected to be 0.50 yuan, 0.60 yuan, and 0.70 yuan respectively in 2018-2020, and the corresponding PE is 15 times, 13 times, and 11 times, respectively. Looking forward to the development of non-electricity businesses and the improvement of the financing environment. Currently, the controlling shareholder's introduction of war investment projects is in progress, maintaining a “careful recommendation” rating. Risk warning. Business development fell short of expectations, gross margin declined, and the financing environment did not improve.