Event: Huaneng Technology released its annual report in 2018, the company achieved operating income of 1.186 billion yuan in 2018, an increase of 46.17% over the same period last year, and a net profit of 137 million yuan, an increase of 48.64% over the same period last year.

The growth of equipment sales is steady, and the cost control is ideal. The sales of magnetic separation water treatment equipment in the company's traditional main business grew steadily, and the supporting water purification operation services doubled. The operating income of the two businesses was + 29.9% 104.2% to 402 million yuan respectively compared with the same period last year. Jiangsu Huada, which the company acquired in 2015, has fulfilled its performance commitment for 2018, and its centrifuge and matching sales business still maintained a good growth trend in 2018, with operating income from + 34.6% to 285 million yuan compared with the same period last year. Municipal investment operation and municipal engineering construction business are progressing smoothly, with operating income from + 44.1% 13.8% to 0.82 billion yuan, respectively. The cost control of the company is relatively ideal. Since 2017, with the expansion of the size of the company, the demand for working capital has increased, and the increase in working capital loans has led to an increase in interest expenses to a certain extent. However, the expense rate during the company period is still well maintained at about 25% (24.91% in 2018).

The landing of China Construction Qiming boots is expected to thicken the company's performance in the future. Huaneng Technology announced on October 16, 2018 that its controlling shareholder, Huanneng Investment, signed a share transfer agreement with China Construction Qiming to transfer 183 million shares to China Construction Qiming at a transfer price of 5.32 yuan per share (a 22% premium over the company's pre-suspension price). The total transfer price is 973 million yuan. As of January 13, 2019, the company has pledged a total of 33.85 million shares to China Construction Qiming in accordance with the transfer agreement, while releasing all pledged shares (a total of 169 million shares) of Huatai, CITIC Construction and Huaxi Securities. On the one hand, China Construction Qiming's entry into the owner can effectively reduce the pledge risk, the proportion of Huaneng investment's pledge to the total equity will be reduced from 25% to 5%, and the Huatai / CSC FINANCIAL CO.,LTD pledge shares with the risk of liquidating positions will be unpledged, and the risk of closing positions will be reduced. On the other hand, the company is expected to use the technology, products and professional team of China Construction Group to graft its project resources and financial strength to effectively improve the company's financial situation and alleviate the pressure of existing cash flow. More importantly, in the future, China Construction Group is expected to integrate its environmental protection business, help the company break through the ceiling of the industry segment, while bringing municipal engineering project resources to the company, and further thicken the company's performance.

For the first time, coverage gives "overweight" rating: we expect the company's return net profit from 2019 to 2021 to be 1.58,1.78 and 196 million yuan, corresponding to EPS 0.23,0.26,0.29 yuan respectively, and the current share price corresponding to PE is 28,25 and 22 times respectively. Taking into account the steady progress of the company's existing equipment sales business, and the ownership of China Construction Group is expected to help the company break through the ceiling of the subdivision industry, and give the company a new increase in performance in the future, giving the company 30 times PE in 2019, corresponding to the target price of 7.02 yuan, covering the "overweight" rating for the first time.

Risk hint: the original business development of the company is lower than expected, the long time of business integration after equity transfer affects the future development, and the risk that the pledged equity is liquidated.