Event 1: the company disclosed its 2019 semi-annual report, which showed a substantial increase in performance. In the first half of 2019, the company realized operating income of 208 million yuan, an increase of 63.5% over the same period last year; net profit of 60.042 million yuan, an increase of 285.40% over the same period last year (forecast net profit of 5700-70 million yuan, in line with expectations); and operating cash flow of 17.26 million yuan, an increase of 13.66% over the same period last year. The sharp increase in performance was due to the rapid growth in the number of orders and project completion, and the net profits of Internet subsidiaries Wuhan Feiyou and Changsha Jufeng were 29.7317 million yuan and 23.3349 million yuan respectively, up 73.36% and 32.33% from the same period last year.

Event 2: the company publishes the 2019Q3 performance notice. The company estimates that the 2019Q1-Q3 homing net profit is 80 million to 95 million yuan, an increase of 242.29% to 306.47% over the same period last year, of which the Q3 quarter net profit increased by 156.17% to 348.70% over the same period last year.

The company is currently the only listed company in the field of waste incinerator protection. The company started as anti-wear and anti-corrosion, and has formed a dual-main business pattern of energy saving, environmental protection and Internet marketing. The operating income of 2019H1 against wear and corrosion, sound insulation and noise reduction project, garbage stove protection and Internet marketing was 35.081 million yuan, 29.182 million yuan, 28.979 million yuan and 87.764 million yuan respectively, up 15.35%, 1147.73%, 147.77% and 28.70% over the same period last year, and the gross profit margin was 33.51%, 34.15%, 32.47% and 73.01%, respectively. Year-on-year growth 8.71pct, decline 13.13pct, decline 14.03pct, growth 2.43pct.

The company's waste incinerator protection business is growing rapidly, and the technology continues to take the lead. 2019H1's waste incinerator protection business accounts for 14.0% of the company's total revenue, an increase of 6.0pct from the end of 2018. We believe that the company is gradually focusing on energy conservation and environmental protection industry, which is expected to further promote the rapid growth of waste incinerator protection business, which will continue to expand its share of total revenue in the future. Order: the company has established strategic cooperation with Shanghai Kangheng Environmental Co., Ltd., Jiangxi Linkage Boiler equipment Co., Ltd., Green Power Environmental Protection Group Co., Ltd., and other domestic large-scale garbage stove construction and operation units. Orders have achieved rapid growth. Technology: the company's garbage furnace protection technology is the introduction of the international welding field of the best welding system platform, through independent research and development of a garbage furnace, biomass furnace and other anti-corrosion technology (HCMT technology). The company started with technological innovation and has more than 20 invention patents, utility model patents and related proprietary technologies. A number of products and technologies have been listed in the National Torch Plan projects, national key new products and national excellent new energy-saving products.

The protection of municipal solid waste incinerator is the innovative application of anti-wear and anti-corrosion technology in municipal solid waste incinerator, which has a large market space. The protection business of municipal solid waste incinerator is the innovative application of anti-wear and anti-corrosion technology in the municipal solid waste incinerator industry, mainly through pre-protection and remanufacturing technical services for the tube row and related parts in the furnace to solve the problem of wear and corrosion, greatly improve the service life and reduce the economic losses caused by wear and corrosion. It is a new industry that arises at the historic moment under the new situation of increasing environmental protection requirements. The municipal solid waste incinerator is the core equipment of the municipal solid waste incineration power plant. With the accelerated release of the market space of the municipal solid waste incineration industry in the future and the upgrading of the existing municipal solid waste incinerator caused by higher incineration standards, there will be a large market space for the anticorrosion engineering demand of garbage incinerator in the future.

The domestic waste classification policy is launched centrally, and the waste incineration and its supporting industries are expected to accelerate the development. From 2003 to 2017, the average annual compound growth rate of municipal solid waste incineration was as high as 49.87%. By the end of 2018, about 400 domestic waste incineration power plants had been built and put into operation in the mainland. In 2018, more than 70 domestic waste incineration plants have been put into operation, 166 are under construction and 201 are planned. However, at present, the proportion of waste incineration treatment in China is still less than 50%, and there is still a large market space compared with 80% of incineration treatment in Japan and other countries. In June 2019, the executive meeting of the State Council adopted the Law of the people's Republic of China on the Prevention and Control of Environmental pollution by solid waste (revised draft). Nine departments, including the Ministry of Housing and Construction, jointly issued the Circular on comprehensively carrying out the Classification of Municipal solid waste in cities at and above the prefecture level, which clearly stipulates the process of municipal solid waste classification. Shanghai Municipal solid waste Management regulations will be formally implemented on July 1. With the introduction of the above laws and regulations on garbage classification, cities at and above the prefecture level across the country will start garbage classification in an all-round way one after another. We believe that the implementation of the above policies is expected to quickly pull the solid waste recycling and disposal industry chain, and the proportion of waste incineration is expected to increase. At the same time, municipal solid waste incinerators and supporting protection technologies need to be further strengthened and upgraded to adapt to higher incineration standards.

In 2019, the acoustic noise reduction market space is 380-40 billion yuan, and the business development space is rapidly opened. The rapid growth of acoustic noise reduction business benefits from the rapid growth of market demand in the industry. with the gradual improvement of people's awareness of environmental protection and health, workers will focus on the comfort and health of the working environment when choosing jobs. The traditional noisy factory environment can no longer meet the needs of workers; in addition, there are more and more complaints from surrounding residents. The most important reason is that after the introduction of "Environmental Protection Law" and "Environmental Protection tax Law", enterprises have to do noise reduction treatment. According to preliminary statistics, the total output value of the noise and vibration control industry in 2018 is about 13.3 billion yuan. Taking into account the expected total investment in building acoustics, industrial noise reduction and rail transit noise reduction, the entire noise pollution control market is expected to reach between 38 billion and 40 billion in 2019.

Investment advice: maintain a buy rating. The company is currently the only listed company in the field of waste incinerator protection. The company innovates and launches the garbage incinerator protection business, the technology continues to lead, the order quantity has achieved the rapid growth. With the outbreak of downstream demand, the company's waste furnace protection and acoustic noise reduction business ushered in market opportunities. Therefore, we believe that the company's waste incinerator protection and acoustic noise reduction business have the conditions to accelerate growth, is expected to enter the performance release stage. We estimate that the company's EPS will be 0.39,0.48,0.60 yuan per share respectively from 2019 to 2021, and the corresponding PE will be 21.8X, 17.9X and 14.2X respectively, maintaining the buy rating.

Risk tips: garbage classification policy is not as strong as expected; the company incinerator protection business market promotion progress is slow and so on.