Incident: On the evening of December 31, 2019, the company disclosed the 2019 draft stock options and restricted stock incentive plan: The company plans to grant 8.12 million stock options to 22 incentive targets, with an exercise price of 12.84 yuan/share, and plans to grant 10.99 million restricted shares to 69 incentive recipients at a price of 6.42 yuan/share. The performance assessment conditions are: based on net profit attributable to 2019, the net profit growth rate for 2020-2022 is not less than 35%/75%/120%, respectively. In response to this, our comments are as follows: Investment points: equity incentives are tied to the core team, and the compound increase of 30% in performance appraisals shows that the company is confident in the company's development. The current equity incentives include two types of stock options and restricted stocks. The incentive methods are relatively diverse. The incentives granted by the equity incentives are 19.11 million shares, accounting for 3.98% of the company's total share capital of 480 million shares, and the incentives are strong. The award targets include directors, deputy general managers, directors, financial directors, middle managers, and core technical personnel. Some of these core personnel gave double incentives, and covered the company with equity incentives. The core management has many motivational targets. It binds personal interests to the benefit of the company, can fully mobilize the enthusiasm of employees, and is conducive to the long-term development of the company. In addition, the performance assessment requirements for equity incentives are based on 2019 net profit. The net profit growth rate in 2020-2022 was not less than 35%/75%/120%, respectively, and the compound growth rate of 3-year performance was as high as 30%, demonstrating management's confidence in the future development of the company. There is a clear recovery in new water orders. The water business is expected to bottom out, and the company's revenue and net profit from 2016-2018 fluctuated. On the one hand, it was affected by the government's repurchase of some sewage plants, and on the other hand, based on the macro and financing environment. The company has a steady business style and focuses on project yield and risk. Therefore, in previous years, when PPP projects in the environmental protection industry were popular, it did not participate in PPP projects such as black and smelly water bodies or watershed treatment with low yields. In 2019, with the gradual end of PPP inventory removal, the industry returned to rationality, and the company began to actively obtain high-quality projects. Since 2019, the company has received projects such as Seaguazhou in Jingdezhen (80,000 tons/day), Honggutan in Nanchang (200,000 tons/day), Taihu New Town in Wuxi (150,000 tons/day), and the Harbin Urban Sewage Plant (150,000 tons/day). There is a clear upward trend in new orders. As of 2019Q3, the company has 500 million yuan in cash on hand, and the balance ratio is only 39.95%. There is still a lot of room for financing. With sufficient orders in hand and sufficient capital, the company's water business is expected to bottom out and reverse. The organic solid waste business is emerging, helping the company rise to the next level. While gaining a foothold in the water business, the company is also actively developing the solid waste business. Introduce high-temperature fermentation technology for YM bacteria from Japan, join forces with Professor Shen Qirong of Nannong University, acquisition of Joint Industry Technology, and Ma Sheng Environment to improve the organic solid waste industry chain, recycle organic waste such as municipal sludge, food waste, straw, livestock and poultry manure, etc., and produce organic fertilizer. Currently, the sludge projects that have been put into operation include Changchun (1100 tons/day), Fujian (150 tons/day), and Xinjiang (300 tons/day), totaling 1,550 tons/day. Kitchen projects include Jiangsu Chenjie (150 tons/day, in operation), Bozhou (200 tons/day, under construction), and Yibin (200 tons/day, under construction). On December 27, the company signed a framework agreement with Ultron Environmental Protection and Aofeng Environmental Protection: it is intended to use waste-derived fuel (RDF) technology to jointly invest in the development of a 500,000-tonne solidified molded fuel rod and 300,000 tons of flower and tree nutrient soil projects in Shanwei City. RDF technology can enrich the company's solid waste treatment technology route, and nutrient soil technology can open up sales volume of the company's solid waste product organic fertilizer and form a closed loop in the industry. The company's organic solid waste business has begun to rise to a new level. The Environmental Intelligent Manufacturing Park is about to be put into operation. Highlights of the new performance of high-end equipment Beginning in 2018, the company invested 300 million yuan to build the Yixing Environmental Protection Equipment Intelligent Manufacturing Park. The project is expected to be put into operation by the end of this year and the beginning of next year. Yixing has more than 2,600 environmental protection enterprises and is known as “China's environmental protection hometown”, yet the overall industry is scattered. The company has built an intelligent manufacturing park and invested in some high-end equipment for use by small enterprises. The company provides processing and manufacturing services, which can raise the level of intelligence and standardization of environmental protection equipment manufacturing in Yixing City and promote the upgrading of the environmental protection industry in Yixing. On the other hand, the company invests in a stainless steel prefabricated water plant production line. Compared with traditional concrete structures, it has advantages such as less investment, short construction cycle, and less floor space. It can enhance the intelligent level of the company's environmental protection equipment, help the company become a leader in the environmental protection equipment manufacturing industry, and add performance growth points. Profit forecast and investment rating: Maintaining the company's “overweight” rating. Without considering the impact of this equity incentive on the company's performance and share capital, the company's 2019-2021 EPS is expected to be 0.54, 0.71, and 0.86 yuan respectively, corresponding to the current stock price PE of 24, 18, and 15 times, maintaining the company's “increased holdings” rating. Risk warning: risk of slow progress of intelligent garden projects, risk of project acquisition and progress falling short of expectations, risk of significant increase in accounts receivable, risk of slow progress in organic solid waste recycling projects, and downside macroeconomic risks.