The environmental infrastructure construction and operation platform of Zhongzhi Environmental Protection, and the core team has been deeply involved in the field of environmental protection for more than 20 years: the company provides environmental and development solutions and long-term personal services for cities, industrial parks and enterprise groups. It is a comprehensive sewage treatment solution provider under Zhongji Environmental Protection that specializes in the operation and management of environmental infrastructure as its core business. The core management team has been engaged in the ecological environment protection industry for an average of more than 26 years. The company has been committed to environmental improvement in small and medium-sized cities for a long time, using municipal sewage and industrial “two barrels of water” as a link to provide comprehensive water environment management and management services. Focus on the quality of development and steady management to help the continuous improvement of operating cash flow: In 2019, the company began to improve the quality of acquisition projects, and the gross margin of project orders obtained was higher than in previous years. At the same time, the company added business in the field of toxic and difficult to degrade industrial wastewater treatment, and its profitability was significantly higher than that of other projects. From January to September 2019, the company's gross margin and net profit margin were 36.39% and 12.45%, respectively, up 7.95 percentage points and 2.1 percentage points from 2018. The active abandonment of high-risk projects and the steady operation of operating projects led to a gradual improvement in net operating cash flow, from $154 million in 2017 to $68 million in Q3 in 2019. In the post-PPP era and in the context of macroeconomic deleveraging, good cash flow has become one of the necessary conditions for the industry to survive the cold winter of development. As the company continues to improve in terms of steady operation and improved cash flow conditions, the company is expected to take advantage of the industry's development process in the future and usher in a new round of rapid growth. Upgrading and upgrading are welcoming opportunities, and the market prospects for declining villages and towns are broad: Currently, the upgrading of sewage treatment plants is an important task in the field of municipal sewage treatment at present, and the process of raising discharge standards to surface IV or even Class III water is gradually progressing. Estimates from the “13th Five-Year Plan” for the construction of urban sewage treatment and recycling facilities show that during the “13th Five-Year Plan” period, 49.4 billion yuan was invested in the renovation of old sewage networks, 50.1 billion yuan was invested in the renovation of rain/sewage confluence networks, and 43.2 billion yuan was invested in upgrading and upgrading sewage treatment facilities. The market space is vast. Compared to cities and towns, China's current rural sewage treatment capacity is relatively low, and rural sewage treatment facilities are in high demand to repair shortfalls. According to the “Statistical Yearbook of Urban and Rural Construction in China”, the sewage treatment capacity of formed towns and villages in China in 2017 was only 10.06% and 0.29% of the city's sewage treatment capacity, and the treatment gap is large. In recent years, new rural sewage treatment policies such as the “13th Five-Year Plan for Comprehensive Remediation of the Rural Environment” and the “13th Five-Year Plan for Improving the Rural Human Settlements Environment” have been introduced one after another, further highlighting the value of the new blue ocean market for rural sewage treatment. The industrial sewage sector is developing rapidly, and the acquisition of Southern Environmental Protection has added new impetus to performance growth: as the company determined a strategy to focus on developing industrial and industrial park business, the sector achieved revenue of 471 million yuan in 2018, an increase of 386.9% over the previous year, which became the main driving force for growth, and 40% of H1's additional 726 million non-operating orders in 2019 came from industrial projects. Furthermore, on April 9, 2018, the company announced the acquisition of 60% of Southern Environmental Protection's shares to strengthen the competitiveness of industrial sewage treatment. Nanzi Environmental Protection has patented technology and core products that use genetic engineering and molecular biology technology to degrade organic toxic and difficult to degrade wastewater. It can treat and degrade toxic and harmful components in wastewater such as pharmaceuticals, chemicals, pesticides, etc., and has a good reputation in chemical and other fields. The acquisition brought advanced technology and business collaboration and high-quality performance growth points to the company. In the context of building ecological civilization, environmental supervision is becoming stricter and the general trend is actually being promoted. In the era of environmental protection inspections, enterprises that stole emissions, missed emissions, and did not meet the standards of treatment facilities in the past are all expected to generate more new industrial wastewater treatment needs. Focus on small and medium-sized cities, continuous order volume, two-wheel drive of EPC+ operations: The company's EPC construction business began to expand at an accelerated pace in 2017, from an additional contract amount of 195 million yuan in 2016 to 705 million yuan in 2018, with an average annual growth rate of 53.5%. From January to September 2019, the company added 963 million yuan in non-operating contracts, reaching a new high, with a year-on-year increase of 63.9%. Currently, the EPC construction business has become the company's main source of performance. At the same time, the company has extensive experience in operating BOT and ROT projects. In 2010, the company seized the opportunity that sewage treatment plants in small and medium-sized cities did not meet standards and entered the ROT project, that is, the investment-upgrade-operation-handover model. This new business model not only saves the trouble of the government initiating reinvestment procedures, but also tests the quality of investment and transformation with operational results, enabling customers to effectively avoid risks in technology, engineering, and investment. Facing the demand for upgrading and upgrading of sewage treatment in China, the company's experience and reputation in ROT projects will continue to bring competitive advantages. Investment suggestions: The company's EPS for 2019-2021 is expected to be 0.66, 0.85, and 1.01 yuan, respectively, and the corresponding price-earnings ratios are 19.9 times, 15.5 times, and 13.0 times, respectively. First coverage, an investment rating of -A for increased holdings was given, and the target price for 6 months was 16 yuan. Risk warning: Project construction falls short of expectations, newly signed orders fall short of expectations, and financing improvements fall short of expectations.