Matters: the company released the 2018 annual report and the first quarterly report of 2019. 1) in 2018, the company realized operating income of 1.264 billion yuan, an increase of 21.95% over the same period last year. The net profit attributed to shareholders of listed companies was 99.9307 million yuan, an increase of-41.45% over the same period last year. Basic earnings per share is 0.3 yuan per share. The company intends to distribute a cash dividend of 0.3 yuan (including tax) to all shareholders for every 10 shares. 2) in the first quarter of 2019, the operating income was 253 million yuan, an increase of 23.96% over the same period last year; the net profit attributed to shareholders of listed companies was 24.0915 million yuan, an increase of 51.98% over the same period last year, and basic earnings per share was 0.07 yuan per share.

The steady growth of the company's business income, the decline of gross profit margin, the loss of asset impairment and the amortization of intangible assets have dragged down the growth of net profit. The company achieved revenue of 1.264 billion yuan in 2018, an increase of 21.95% over the same period last year. Revenue growth is mainly due to the rapid growth of municipal garden plate, water conservancy projects and pipeline sales. From the perspective of business structure, engineering revenue is still the main source of revenue, with revenue of 845 million yuan (year-on-year), accounting for 66.84% (year-on-14.80pct), of which municipal garden and eco-tourism landscape achieved revenue of 547 million yuan (103.13%) and 254 million yuan (- 11.59%) respectively, accounting for 43.28% (year-on-year 17.30pct) and 20.08% (year-on-7.62pct) respectively. The revenue of road greening was 43 million yuan (- 84.82% compared with the same period last year), the proportion dropped to 3.40% (compared with the same period last year-23.93pct), mainly due to the relatively small proportion of the construction of the ecological greening project of Kaizhou Road in Qingfeng County. The scale of revenue from real estate landscape and conservation continues to shrink, accounting for 0.08 per cent of the total revenue of only 1 million yuan in 2018. During the period, the company's revenue from water conservancy projects, pipeline sales and design increased significantly, to 168 million yuan (134.51%), 155 million yuan (78.47%) and 11 million yuan (312.89%) respectively. The improvement of water conservancy projects and design revenue mainly benefited from the fact that the company completed the acquisition of 80% of Zhongwei International and 60% of Zhengzhou Water in 2017, cultivating new business growth points in the municipal and water conservancy fields, and strengthening the company's design strength at the same time. The company's business structure has been continuously optimized, and the business focus has shifted from traditional real estate gardens to municipal gardens and ecological landscape gardens, while expanding to water conservancy projects, sports, culture, tourism and other areas of core business. In terms of the growth rate of net profit, the company's net profit fell 41.45% during the reporting period compared with the same period last year. We believe that this is mainly due to the decline in gross profit margin of the main business, amortization expenses of intangible assets, financial expenses, provision for bad debts of accounts receivable and substantial increase in the impairment of Zhengzhou water goodwill. In 2018, the gross profit level of the company's main construction projects was relatively low, and the overall gross profit margin level decreased by about 3 pct; periods. The company acquired intangible assets such as water conservancy level 2, municipal level 1 and highway level 2 qualification, and corresponding amortization expenses increased. Due to the increase in borrowing and rising financing costs, the financial expenses during the period increased by 239.84% compared with the same period last year. The impairment loss of the company's assets is 64 million yuan (+ 325.92% compared with the same period last year), which mainly includes 26 million yuan for bad debts and 30 million yuan for goodwill impairment. On a quarterly basis, 2018Q1~Q4 achieved net profit growth of-44.75%, 32.29%, 241.10% and-98.06%, respectively. In 2019, Q1 revenue growth continued to be steady, with a year-on-year growth rate of 23.96%, and the growth rate of home net profit increased significantly to 51.98%.

Profitability has declined and costs have increased significantly during the period. During the reporting period, the company's comprehensive gross profit margin was 28.98%, down 3.01 pct from the same period in 2017. Mainly because the main projects during the period are civil construction-based infrastructure projects with low gross margin, the proportion of revenue from municipal gardens with low gross margin has increased, and the proportion of road greening business with relatively high gross margin has declined in this period. at the same time, the decline in gross profit margin of water conservancy projects is caused by rising raw material costs and contract changes. The gross profit margin of the company's municipal garden, ecotourism landscape, municipal road and greening, water conservancy project, pipeline sales and design business is 24.02% (year-on-year + 8.39 pct), 33.91% (year-on-year + 3.76 pct), 56.72% (year-on-year + 14.02 pct), 9.99% (year-on-year-30.25 pct), 38.26% (year-on-year-0.92 pct) and 46.81% (year-on-year). In terms of period expenses, the company's sales expenses, management expenses, R & D expenses and financial expenses rates in 2018 were 1.41% (year-on-year + 0.70 pct), 8.96% (year-on-year + 2.20 pct), 3.91% (year-on-year + 3.55 pct), 3.05% (year-on-year + 1.95 pct), accounting for 17.33% (year-on-year + 8.40 pct). According to the annual report, the sharp increase in sales expenses during the reporting period (year-on-year + 142.80%) is mainly due to the company's merger of Zhengzhou Water and Zhongwei International's two holding subsidiaries in 2018, while the same period last year only merged sales expenses from November to December 2017. The substantial increase in management expenses (+ 61.57%) is mainly due to the discrepancy between the merger period of Zhengzhou Water Affairs and Zhongwei International during the reporting period and the same period last year. During the same period, the company acquired intangible assets such as water conservancy level II, municipal level I, highway level II qualification, and the corresponding amortization expenses increased. The increase in R & D expenditure (year-on-year + 1229.18%) is due to increased R & D investment during the period, and the R & D investment cost of the project was collected in the project cost before 2018, and the R & D expenditure of the project was included in the R & D expenditure in 2018. The sharp increase in financial expenses (+ 239.84% compared with the same period last year) is mainly due to the lower bank borrowing and interest expenses due to the use of funds raised in the same period last year, while the increase in bank borrowing and the increase in average annual financing costs in 2018. In 2018, the net interest rate was 8.95% (year-on-year-9.35 pct), and profitability declined.

The inflow of operating cash increased, the balance of monetary funds increased, accounts receivable increased, and the asset-liability ratio increased. In terms of cash flow, the cash flow generated by the company's operating activities returned to normal during the period, with a net inflow of 146 million yuan, an increase of 321.11% over the same period last year, mainly based on the fact that the relative gross margin of the business undertaken during the reporting period decreased compared with the same period last year. The company adjusted its development ideas in the middle of the year, strengthened its internal fund management, and increased its collection efforts. The net cash flow generated by investment activities was-395 million yuan, an increase of 944.33% over the same period last year, mainly due to the company's payment of capital to associated enterprises during the period to promote the implementation of the Wuhan network security project; the net cash flow generated by fund-raising activities was 405 million yuan, which was significantly higher than that in the same period last year, mainly due to the increase in bank borrowing during the period. In terms of monetary funds, the balance of the company's monetary funds at the end of the period was 302 million yuan, an increase of 130.53% over the beginning of the year, mainly due to the increase in cash inflows into the aforementioned business activities and fund-raising activities. In terms of accounts receivable, the company's accounts receivable during the period was 421 million yuan, an increase of 40.73% over the beginning of the year, mainly due to the increase in the scale of business. In terms of capital structure, the company's asset-liability ratio at the end of the reporting period was 65.85%, an increase of 6.72 pct over the same period last year, mainly due to the increase in bank borrowing during the period; if we examine the asset-liability ratio excluding accounts received in advance, the asset-liability ratio at the end of the year is 61.13%.

Epitaxial mergers and acquisitions expand the industrial chain, and sufficient orders provide support for performance. In 2017, the company successively completed the acquisition of 80% of Zhongwei International and 60% of Zhengzhou Water, cultivating new business growth points in the municipal and water conservancy fields, while enhancing the company's strength in the design field and expanding to the front end of the industrial chain. Since 2017, according to the strategic concept of "ecology + literature travel" and "ecology + style", the company has continuously promoted the deep integration of ecological construction, cultural tourism and sports industry, and has undertaken high-quality PPP projects related to culture and culture. By the end of December 2018, the company has signed three formal contracts for major PPP projects, with a total investment of 12.754 billion yuan. The amount of newly signed contracts in 2018 was 5.234 billion yuan, an increase of 97.97% over the same period last year, which is about 4 times the total revenue in 2018. The company has a strong business undertaking capacity, and sufficient orders enhance the company's performance flexibility. The company announced the restricted stock incentive plan in 2018, and completed the registration of the first grant of restricted stock on June 5, 2018, awarding 7.702 million restricted shares to 95 people of the company. the incentive targets include directors, senior managers, middle managers and core personnel who served in the company when the company announced this incentive plan. Restricted stocks are subject to performance evaluation in 2018-2020 to lift the restriction, and the incentive scheme is released in 2018-2020. The harsh unlocking conditions demonstrate the company's confidence in development.

Valuation and investment advice. It is estimated that the revenue from 2019 to 2021 will be 1.634 billion yuan, 2.042 billion yuan and 2.493 billion yuan respectively, an increase of 29.2%, 25.0% and 22.1% over the same period last year. The net profits belonging to the shareholders of the parent company are 157 million yuan, 205 million yuan and 256 million yuan respectively, with year-on-year growth rates of 57.5%, 29.9% and 25.0%, respectively. The EPS was 0.46,0.60,0.75 yuan respectively, and the corresponding dynamic PE was 20.7,15.9,12.7 and 2.6,2.3,2.0 respectively. The company is based on ecological garden construction, actively layout style, literature and travel market, while expanding the length of the industrial chain to add water conservancy projects and design business, the company's order income is relatively high, the flexibility of performance growth is expected to be with the help of the "PPP" model, benefit from ecological civilization construction policy dividend, market share is expected to continue to grow. Maintain the company's "overweight-A" rating, with a target price of 12.4 yuan, corresponding to about 26.9 times PE in 2019.

Risk hints: PPP policy changes, interest rates upward, high accounts receivable, market adjustment and other risks.