1. Incident Overview The company released its 2019 performance forecast. It is expected to achieve net profit of 0.88 to 106 million yuan for the whole year, an increase of 45% to 75% over the previous year. Profit slightly exceeded market expectations, and the total volume of environmental engineering+sewage treatment increased by a median of 60% this time, slightly exceeding the previous consensus forecast of 42% of WIND. Among them, Q4's profit for the single quarter is expected to be around 36 million yuan, an increase of nearly 100% year-on-year, and the growth rate continues to increase compared to the previous three quarters. We judge that the increase in profit is mainly due to the volume of the company's environmental engineering business. In 2018, the company announced orders such as PPP projects for domestic sewage treatment in rural Tongcheng, with an investment amount of nearly 1.4 billion yuan, setting a new record for the company. The company's sewage treatment and environmental engineering business revenue increased by 44% and 60% respectively in the first half of the year, and the scheduled construction of ongoing projects became the main driving force for the company's performance. Steady operation, high quality projects, water engineering and waste power generation boost performance, and the company's business style is steady. 2/3 of 2018's gross profit came from sewage treatment operations. In 2019, the company announced that it won new bids for sewage treatment projects in Tai'an, Shushan and Quzhou, with a total investment of about 1 billion yuan. The project period is 1 to 2 years, and the results are expected to be released quickly. Meanwhile, the company's fixed increase of 550 million yuan has recently been reported to the Securities Regulatory Commission, which will provide financial guarantees for the implementation of subsequent projects. Since 2018, the company has entered the waste-to-energy sector by undertaking projects to be built under Shengyun Environmental Protection. Currently, it has 4 waste incineration power generation projects, with a total scale of about 2,100 tons/day in the first phase. Among them, the Guizhou Dejiang project was put into operation within the year according to the construction schedule, and the Huimin and Chengde projects are also expected to gradually be implemented over the next two years. The garbage disposal costs for the Dejiang Project and the Chengde Project were 75 and 95 yuan/ton respectively, which is higher than the industry average of 65 yuan/ton in 2019, which shows the high quality of the project. The financial situation is superior to that of peers. In the future, the Group is expected to provide more support after excluding the impact of investment funds related to sewage treatment projects into the cash flow of operating activities, the company's net inflow from operating activities in 2018 was 80 million yuan, which is basically in line with profit. The balance ratio at the end of Q3 was 60.5%, lower than that of peers, and the debt structure was dominated by long-term loans, which is more in line with the longevity of the business. Zhang Bozhong, the controlling shareholder of the company, is a subsidiary of Zhongchen Group whose business is mainly real estate, and its strength is strong. During the year, the actual controller provided the company with 300 million yuan in related loans to support the company's business. Relying on the advantages of listed platforms, the Group's resources are expected to gradually lean towards environmental protection business in the future. 3. Investment proposal The company has a steady business style. It is expected that the high-quality projects in progress will gradually be implemented in the next two years, while also entering the waste-to-energy business. We are optimistic about the company's future growth space. We expect EPS from 2019 to 2021 to be 0.61/0.86/1.17, respectively, corresponding to the current PE price of 21/15/11x, lower than the 2020 median PE forecast of 18x for the industry. It was covered for the first time and gave a “recommended” rating. 4. Risk warning 1. Ongoing project construction falls short of expectations; 2. The financing environment continues to be tightened.