The company recently released its 2017 semi-annual report. In the first half of the year, the company achieved operating income of 253 million yuan, an increase of 91.24% over the previous year, and net profit of 67 million yuan, an increase of 178.77% over the previous year. The comments are as follows: Business undertakings increased dramatically and revenue increased rapidly. In the first half of 2017, the company signed a number of cooperation agreements and won two construction contracts with a total amount of 493 million yuan, a significant increase over previous years. Revenue was 253 million yuan, an increase of 91.24% over the previous year. Business concentration increased further, mainly benefiting from a sharp increase in the volume of engineering business undertaken by the company. The projects undertaken by the company are mainly large and medium-sized lighting projects, and the customer concentration is high. With the country's strong promotion of the lighting engineering industry and the continuous improvement of the company's popularity and financial strength, the company's revenue level is expected to increase further, and the cost rate during the period of further growth. The company's net profit increased sharply by 21.61% during the first half of '17, a decrease of 1.94 percentage points. All three cost rates fell to varying degrees, or due to the scale effect brought about by the expansion of the company's business scale, improving management standards. Excluding the impact of “business reform and growth”, the company's adjusted gross margin for the first half of 2017 was 54.64%, up 7.3 percentage points from the previous year, or due to the company's scale expansion while effectively controlling costs. As the business continued to expand, the company's net profit also increased steadily. Net profit for the first half of the year reached 67 million yuan, a sharp increase of 178.77% over the previous year. The company's performance for the first three quarters of this year is expected to continue a sharp upward trend. Net profit is estimated to be between 117 million yuan and 124 million yuan, up 138.28% to 153.62% year on year. The increase in project funding has made operating cash flow negative year after year. Employee stock ownership plans may have boosted performance growth. The payout ratio for the first half of 2017 was 0.3 percentage points down 0.09 percentage points from the same period last year, and the payout ratio was 0.86, up 0.1 percentage points from the same period last year, all due to the increase in advance capital brought about by the increase in business volume. The net cash flow from the company's operating activities in the first half of the year was -112 million yuan, down 148.4% year on year. At the same time, the company announced the first phase of the draft employee stock ownership plan, covering no more than 120 people, which is quite extensive. When the plan was established, the total capital did not exceed 100 million yuan, and the maximum size of the trust plan was no more than 300 million yuan. The leverage was 2:1, accounting for about 3.95% of the current market value of the company. The company launched an employee stock ownership plan just over a year after listing, which is expected to effectively stimulate the company's business vitality, enhance the cohesion of the company's employees and the company's competitiveness, ensure long-term and stable development of the company after listing, and promote performance growth. Investment recommendations In the first half of 2017, the engineering business undertaken by the company increased dramatically, and operating income and net profit also grew rapidly. Benefiting from the promotion of the national PPP model and characteristic towns, the urban landscape lighting industry ushered in a period of development opportunity, and it is expected that the company's profitability will further increase. With the successful listing of the company in 2016, operating capital was fully guaranteed, and its ability to undertake large-scale projects was significantly enhanced. The company's business is expected to expand at an accelerated pace in 2017. Overall, the company's business situation continues to improve. We expect EPS in 2017-2019 to be 0.8, 1.21, and 1.83 yuan/share, corresponding PE of 32, 21, and 14 times. It was covered for the first time, and a “increase in holdings” rating was given. Risk warning: The development of the lighting engineering industry falls short of expectations