Incident Overview: Zhejiang Zhonghe Technology Co., Ltd. aims to integrate resources, enhance company value, and optimize the company's assets and business structure, and implement differentiated development models in a targeted manner based on the characteristics and new trends of the environmental protection business industry to achieve the sustainable development of environmental protection business, especially expanding and strengthening related segment businesses such as water treatment. On the basis of establishing an environmental platform company, Zhejiang Zhonghe Dakang Environmental Co., Ltd., it is proposed to introduce Shanghai Shennengchuang Energy Development Co., Ltd. as an industry partner, to give full play to Shanghai Shennengchuang Energy Development Co., Ltd., as an industry partner, to give full play to Shanghai Shennengchuang Energy Development Co., Ltd. With superior resources such as background, channels, and financial strength in industries such as energy, energy saving and environmental protection, we cooperate with them in various forms such as equity and project investment. The two sides have reached a preliminary agreement on the above cooperation matters, and signed the “Framework Agreement on Environmental Protection Business Cooperation” after review and approval by the board of directors on September 12, 2019. The equity cooperation model is divided into “three steps”, and shares in environmental protection businesses may be sold in the future. This time, the environmental protection platform introduced a long-term industrial development partner. The partner Shanghai Shennengchuang is a subsidiary of Neng Group and is being developed through various forms such as equity and project investment. Equity partners are specifically divided into three stages. In the first stage, Shanghai Shennengchuang acquired 40% of the shares of the target company held by Zhonghe Technology within 2019 and became an important strategic shareholder of the target company; in the second stage, Shanghai Shennengchuang unconditionally enjoyed the independent choice of continuing to acquire 30% of the target company from Zhonghe Technology in 2020 or abandoning the second phase acquisition/all acquisitions (including the first phase acquisition or subsequent stage acquisition); in the third stage, Zhonghe Technology has the right to require Shanghai Shennengchuang to acquire no more than 20% of the target company from Zhonghe Technology in 2021 Equity (inclusive). Integrate resources in the short term to promote environmental protection business development, and focus on the main rail transit business in the medium to long term. The company's current business is mainly divided into two parts: rail transit and energy saving and environmental protection. In the first half of 2019, the company's water treatment business revenue was 247 million yuan, accounting for 23% of total revenue. The revenue from rail transit signal systems and automatic ticket sales and inspection systems was 670 million yuan, accounting for 64% of total revenue. Shanghai Shennengchuang is a subsidiary of Shenneng Group and is Zhonghe Technology's partner in the environmental protection sector. Shenneng Group currently has more than ten second-tier wholly-owned and holding subsidiaries, including Shenneng Co., Ltd., Shanghai Gas Group, and Orient Securities (SH600958). In recent years, Shenneng Group has vigorously promoted the expansion of the energy industry chain, successively entering new business fields such as energy saving and environmental protection, energy trade, and new energy venture capital funds. In the short term, the introduction of Shanghai Shenneng Chuang, an industrial development partner, will help enhance the profitability of existing environmental protection businesses through the integration of industrial resources, especially the scale and overall competitiveness of water treatment and other businesses. In the long run, the company may sell environmental protection services and continue to focus on rail transit business. The urban rail transit industry is currently maintaining a high boom. The end of the 13th Five-Year Plan period ushered in the peak of traffic opening. In the long run, there is still plenty of room for urban rail transit development, and the urban rail traffic signal system continues to thrive along with the development of the urban rail industry. Profit forecast and investment rating: The urban rail transit industry has maintained its prosperity, and the company's smart transportation sector is performing well; the energy saving and environmental protection sector is performing steadily, and introducing long-term industrial development partners will help enhance the profitability of existing environmental protection businesses, especially the scale and overall competitiveness of water treatment and other businesses. Compared to the energy saving and environmental protection sector, we recommend that investors focus on increasing the company's self-developed system volume and gross margin. The company's net profit from 2019 to 2021 is estimated to be 134/220/324 million yuan, maintaining an “increase in holdings” rating. Risk warning: The volume and gross margin of self-developed signal systems are lower than expected; the performance of companies in the energy saving and environmental protection sector is lower than expected; and the competitive pattern of the industry deteriorates.