Event: the company released the 2019 semi-annual report, the company's operating income in the first half of 2019 was 410 million yuan, down 6.60% from the same period last year; the net profit from home was 39.26 million yuan, down 42.92% from the same period last year; the net profit from non-return was 34.33 million yuan, down 49.79% from the same period last year, and the performance was lower than expected; the company's impairment loss for the current period was 15.45 million yuan.

Equipment sales are stable, and the decline in operating services affects the company's performance. In terms of business, the operating income of the company's complete sets of water treatment equipment and supporting business fell slightly by 6.64% to 167 million yuan; the centrifuge and supporting business maintained a steady growth trend, with operating income exceeding 100 million for the first time in the first half of the year, up 14.65% to 109 million yuan over the same period last year; the company's operating business income decreased by 25.81% to 99 million yuan compared with the same period last year, and the gross profit margin increased by 5.23 pct to 45.41%.

The company's comprehensive gross profit margin decreased by 2.72 pct year-on-year to 42.34%, sales / management / financial expenses increased, and the expense rate increased by 6.99 pct year-on-year to 30.71%. During the overlay reporting period, the company calculated an impairment loss of 15.45 million yuan (mainly due to the loss of credit impairment caused by the loss of bad debts of accounts receivable), and the company's net profit was reduced by 42.92% to 39.26 million yuan compared with the same period last year.

China Construction Group has officially become the actual controller, and the integration is still in progress. In October 2018, the company signed a share transfer agreement with China Construction Qiming (a wholly owned subsidiary of China Construction Group). In January 2019, China Construction Group became the actual controller of the company. The ownership of China Construction Group can effectively reduce the company's pledge risk and improve the company's financial situation; in the future, China Construction Group is expected to integrate its environmental protection business and bring municipal engineering project resources to the company while helping the company break through the ceiling of the subdivided industry. further thicken the company's performance. According to the China News, the company did not further undertake new energy conservation and environmental protection project orders and investment and operation orders, nor further capital operation, indicating that the integration is still in progress. At present, with the changes in the macroeconomic situation at home and abroad and the pressure on the economic environment, infrastructure is expected to become an important means to support China's economy. China Construction Group, as an important enterprise in China's construction industry, will play an important role in this process; in addition, the company's magnetic separation water purification technology is expected to play a more important role in the treatment of black and smelly water bodies.

Maintain "overweight" rating: according to the actual operating situation of the company in the first half of 2019, without considering the municipal resources brought by China Construction Group for the time being, it is prudent to see that we have reduced the company's 19-21 net return profit to 1.32 pounds per annum (the original value is 1.58 pounds per annum). It is estimated that the company's EPS for 19-21 years will be 0.20 pounds 0.22 yuan respectively. The current share price is 24 times the 19-year PE. We believe that in the follow-up, China Construction Group is expected to expand its relevant business on the platform of listed companies, further increase the volume of business and assets, and look forward to bringing new growth momentum and maintaining the "overweight" rating after mixed reform and integration.

Risk hint: the company's original business development is lower than expected; the progress of integration is lower than expected.