Report Summary: We believe that the core advantage of Pengyao Environmental Protection is that the management is long-term and forward-looking, has good risk control and project screening capabilities, focuses on businesses with good cash flow, and leverages the environmental technology and equipment advantages of private enterprises, so that the company can operate and grow steadily during the 35-year wave of environmental protection development. The water sector is operating steadily, and on-hand orders guarantee endogenous growth. The company's water sector focuses on operations, invests and operates mainly in water supply and sewage treatment businesses, and is not involved in PPP fields such as river management and comprehensive environmental treatment with cash flow differences. Currently, the company operates 18 water projects of various types, with an operating volume of 1.4 million tons/day. The water operation business has stable water revenue, which can contribute stable cash flow to the company. At the same time, the company is still at the peak of capital expenditure for water plants. Ongoing projects are being built and put into operation one after another, which will guarantee the endogenous growth of the company's operating volume in the next few years. Improved Japan introduced YM bacteria ultra-high temperature fermentation technology and entered organic solid waste treatment and disposal. Peng Yao has relied on YM bacteria technology to enter fields such as sludge and agricultural waste. Demonstration projects in Changchun, Fujian, and Xinjiang and Beijing Sanitation Group's Nangong Compost Plant have all achieved good results. Currently, 1,550 tons/day of sludge projects have been put into operation. In the field of cooking, the company has cooperated with Ma Sheng in Wuxi. Jiangsu Chenjie's 150 tons/day project has already been put into operation. The Haozhou and Yibin food projects that won bids this year will also start one after another. In the future, the company will rely on technological advantages to build a comprehensive urban organic solid waste classification waste disposal center. Integrate Yixing's advantages in equipment manufacturing and focus on environmentally friendly high-end equipment upgrade research and development. On the one hand, the company raised about 300 million yuan of its own capital to build an environmentally friendly intelligent manufacturing park, leveraging the advantages of Yixing's environmental protection equipment to drive the clustering of Yixing's environmental protection industry. Currently, most of the investment promotion work for the first phase of the smart landscaping park has been completed, and the company's prefabricated water plant and decentralized fermentation equipment will soon be mass-produced, which is expected to create a new performance growth point for the company's equipment business. Company profit forecast and investment rating: We expect the company's main revenue for 2019-2021 to be 1,412 billion yuan, 1.706 billion yuan and 2.112 billion yuan, respectively, and net profit to mother of 215 million yuan, 296 million yuan and 4.09 yuan respectively. The corresponding EPS is 0.45 yuan, 0.62 yuan and 0.85 yuan respectively. The corresponding PE is 26 times, 19 times, and 13 times, respectively. The first coverage gives the company a “recommended” rating. Risk warning: Industry policies have changed; project progress has been blocked; sales of environmental equipment fall short of expectations.