Matters: The company plans to establish a new environmental protection industry strategic platform company “Zhonghe Environment”, transfer the shares of subsidiaries related to the water treatment business in the environmental protection sector to the platform company through internal transfers, integrate environmental protection business systems such as water treatment, and achieve group management. The environmental protection platform introduced Shanghai Shenneng Energy Development Co., Ltd. as an industry partner and signed the “Framework Agreement on Environmental Business Cooperation”. Shanghai Shennengchuang acquired 90% of the company's shares in the environmental protection platform in three stages in an all-cash manner. Comment: Integrate environmental business and focus on rail transit. Zhonghe Technology is divided into two business segments: rail transit and energy saving and environmental protection. Among them, the rail transit business has developed rapidly in the past two years, achieving revenue of 675 million yuan in the first half of the year, an increase of 74.56% over the previous year. The energy saving and environmental protection business sector includes subsidiaries such as Suzhou Kehuan, Haituo Environment, and Dakang Environment. The establishment of an environmental protection platform this time will transfer 100% of the shares of the three subsidiaries of Suzhou Kehuan, Haituo Environment, and Dakang Environment to the name of Zhonghe Environment. Shanghai Shenneng Innovation was introduced as a battle investment to acquire 90% of Zhonghe Environment's shares in 2019-2021 in three stages. The first stage was the acquisition of 40% of the shares in 2019. If the cooperation is completed, rail transit will be the main business at the listed company level. The rail transit business has sufficient orders in hand and has entered a period of performance release. The company's new orders for 2016-2019 H1 rail traffic signal systems reached 1,147 billion, 3.142 billion, 1,656 million, and 1,276 million, respectively, and the company's signal system business order cycle is long. Sufficient orders in hand will be confirmed this year and next year, entering the performance release period. Moreover, the proportion of self-research in newly signed orders continues to increase. The proportion of 2016-2019H1 self-developed systems has reached 15.45%, 36.56%, 73.77%, and 77.74%, respectively. The profitability of companies entering the confirmation cycle with self-developed systems will be further improved. Urban rail construction is in full swing, and the scale of the rail traffic signal system industry continues to expand. Since the release of New Regulation No. 52 in mid-2018, urban rail approval has been restarted. In the first half of 2019, the scale of urban rail construction continued to expand and approval accelerated. The Development and Reform Commission approved the next round of urban rail planning and construction in four cities (Wuhan, Zhengzhou, Chengdu and Xi'an), involving a total of 30 projects, with a total mileage of 684.65 kilometers and a total investment amount of 489.484 billion yuan. It is estimated that in the next three years (2019-2021), the urban rail traffic mileage will reach 1404 kilometers, 2289 kilometers, and 1,589 kilometers, respectively, and the annual market size of signal systems will reach 14 billion, 22.9 billion, and 15.9 billion yuan respectively. Profit forecast: Since this cooperation project will not have a significant impact on the company's financial situation and operating conditions for the current year until the implementation of the second phase is confirmed, we maintain our estimate that the company's EPS in 2019-2021 will be 0.27/0.44/0.55 yuan, corresponding PE is 26/16/13 times. Considering the company's ongoing orders, combined with the company's historical valuation level and comparable company valuation levels, we gave Zhonghe Technology a 30-35 times valuation in 2019, maintaining the target price range of 8.1 to 9.45 yuan, maintaining the “recommended” rating. Risk warning: The pace of bidding for rail transit projects is slowing down, and the company's market development falls short of expectations.