Report Summary: A comprehensive water treatment service provider focusing on technology research and development. The third quarter's profit reached an inflection point. The company is one of the earliest and most influential integrated environmentally friendly water treatment service providers in China. It has a full water treatment industry chain layout from technology research and development to consulting design, equipment customization, engineering contracting, investment and operation management. Since its establishment, the company has focused on environmental technology research and equipment manufacturing, and has insisted on operating projects with clear charging sources. The overall profit quality is high. Investment and operation assets contributed nearly 80% of gross profit in 2018. As the on-hand sewage treatment project gradually entered the construction period, the company's Q3 net profit returned to mother +58% year-on-year in a single quarter, a record high since listing. The upgrading and renovation of sewage treatment plants boosted performance. The market space for prefabricated water plants is huge. Since 2015, the company's water investment business revenue has declined slightly, mainly affected by water price adjustments. At the same time, some water plants have been bought back by the government. However, with the gradual improvement of low price competition in the PPP business in recent years, the company has accelerated business development in related fields. In 2019, the company won the bid for new water services projects such as 200,000 tons/day in Honggutan in Nanchang City, 80,000 tons/day in Xiguazhou in Jingdezhen, and sewage treatment renovation and expansion/construction projects in Taihu New Town, Harbin, and Zhoukou Hexi. Newly announced water orders of nearly 2.2 billion yuan, 2.5 times that of 2018. According to estimates of a construction period of 1 to 2 years, the company's engineering revenue is expected to be released quickly in the next two years. Furthermore, the company is developing a prefabricated sewage treatment plant solution. Compared with traditional concrete structures, this solution has multiple advantages such as low cost and short construction period, and can be widely used in emergency water plants, rural sewage treatment, etc. Organic waste recycling collaborative disposal technology is beginning to show results. The company is expected to enter the harvesting period in 2016. Through independent development and introduction of technologies such as high-temperature aerobic fermentation of Japanese YM bacteria, the company's organic solid waste recycling technology already has the advantages of high decay of fermentation products, strong disposal synergy, and low cost. It can be used to dispose of organic waste such as sludge, kitchen waste, and straw, to obtain benefits from disposal fees while utilizing product resources to produce organic fertilizer and nursery substrates. The company's related technology has been well applied in projects such as collaborative sludge disposal of agricultural waste in Changchun, Xinjiang, Fujian, etc. The total treatment scale of the projects already put into operation in the first half of the year reached 1,200 tons/day, and the distributed fermentation equipment developed is also expected to open up the wet waste market. In 2019, the company won new bids for solid waste projects such as food waste in Bozhou and Yibin. In the future, as production capacity of existing projects gradually climbs and sales channels for organic fertilizer products expand, the company's solid waste business is expected to usher in a harvest period. Investment Proposals As in-hand sewage treatment projects gradually enter the construction period, the company's Q3 performance reached an inflection point and is expected to achieve rapid growth throughout the year. In the future, we are optimistic about the performance flexibility brought about by the timely construction of the company's ongoing projects and the application and promotion of organic waste resource technology. We expect EPS to be 0.63/1.25/2.09 from 2019 to 2021, corresponding to the current stock price PE18/9/6x. The company's current PE is in the bottom range since listing. In 2020, PE is predicted to be lower than the average value of 16x in the sewage treatment and water industry, covered for the first time, giving it a “recommended” rating. Risk warning 1. Ongoing project construction progress falls short of expectations; 2. Solid waste business expansion falls short of expectations.