Analysis and judgment: East China High Quality Water Company has formed a two-wing development pattern as a comprehensive service provider for urban sewage treatment and industrial wastewater treatment solutions. Since its establishment, it has focused on the main sewage treatment business. The main sewage treatment business is distributed in Anhui and Shandong provinces. Through continuous development of new businesses, it has gradually strengthened the company's influence in sewage treatment in East China, and gradually spread its business to other provinces. Up to now, the company has more than 20 sewage treatment projects that have been put into operation, construction projects, and won bids, with a total production capacity of over 800,000 tons/day. Among them, more than 10 projects have already been put into operation. The main operating models are BOT, TOT, and contract operation, with a total production capacity of over 500,000 tons/day. In 2019, the company received large orders one after another. The implementation site of the winning project was no longer limited to Anhui and Shandong provinces, but gradually expanded to other provinces. The content of the project is no longer a single municipal sewage; it includes landscape restoration and drainage projects, and the overall business is more diversified. Currently, there are nearly 10 projects under construction and bid, involving PPP operation projects, BOT and DBO projects. Excluding PPP projects, the total production capacity under construction and winning bids exceeds 260,000 tons/day, laying the foundation for the company's sewage operation scale growth in 2020 and 2021. Actively lay out the solid waste industry and promote rapid project construction companies to meet market demand and actively lay out the domestic waste incineration field. In 2018, they officially entered the domestic waste incineration industry by transferring shares in Shengyun Dejiang County's domestic waste incineration project. The project was officially launched and operated on November 12, 2019. Currently, the company has 4 projects with a total production capacity of 2,100 tons/day. The Huimin County project completed the capping of the main plant structure at the end of December 2019, and is expected to be put into use in 2020. The newly bid for the domestic waste incineration power generation project in Chengde County is 95 yuan/ton, which is far higher than the industry average of 50-60 blocks. The high-quality project guarantees an increase in performance in the later stages. As waste incineration projects are built and put into operation one after another, the company will accumulate experience to further expand the domestic waste incineration business and form a “sewage treatment+domestic waste incineration” two-wing development model. In October 2019, the company announced plans for the non-public offering of A shares. The number of A shares to be issued privately is no more than 49.39 million shares (including the number of shares), no more than 30% of the total share capital of the company before issuance, and no more than 550.01 million yuan in capital raised (including issuance fees). The funds raised were used for the Huimin County Domestic Waste Incineration Power Generation Project, Tai'an Daiyue Xinxing Industrial Park Integrated PPP Project, and supplementary working capital. Once the fixed increase is successfully completed, it will greatly improve the company's current cash flow situation, promote the construction of the company's ongoing projects, speed up project completion, and further guarantee an increase in the company's performance. Revenue has grown rapidly, and gross margin has declined. The company's business has developed rapidly in recent years. The business has continued to expand, and operating income has maintained a high growth rate. The company's revenue in 2017-2019 was 233/3.90/654 million yuan respectively, up 30.72%/67.78%/67.59% year-on-year. The revenue growth rate was higher than 65% for two consecutive years. The revenue in 2019 was nearly three times that of 2017, and the growth was very rapid. The sharp increase in performance has benefited from a surge in the environmental engineering business. In 2014, the company's environmental engineering revenue was only 36 million yuan. By 2019, it had soared to 465 million yuan, an increase of more than 10 times. Environmental engineering revenue also increased from 25.53% in 2014 to 71.12% in 2019. Since 2018, the environmental engineering business's revenue has surpassed the sewage treatment business and has become the company's main source of revenue. The sewage treatment business has been growing steadily in recent years, from revenue of 102 million yuan in 2015 to 189 million yuan in 2019, with a compound growth rate of 16.67%. Although the environmental engineering business grew significantly, due to the low gross margin of this business, the gross margin of the company's overall business was 24.07%/15.82%/20.14% respectively in 2017-2019. Even though the gross margin of the sewage treatment business was relatively high, the company's overall gross margin declined slightly. It was 39.70%/31.18%/30.16% respectively in 2017-2019. The investment proposal company is currently focusing on the two main businesses of sewage treatment and solid waste incineration. While rapidly expanding the water treatment business, the company is actively expanding the waste incineration business. The company has maintained a good upward trend in recent years. The company's environmental engineering business has grown rapidly. The problem of low gross margin in this business has improved markedly, and the decline in the company's overall gross margin has narrowed. At the same time, the company continuously improves cash flow and promotes the construction of the company's projects through the issuance of bonds and fixed increases. Currently, the company has a sewage treatment scale of more than 500,000 tons/day, with a backup treatment capacity of more than 260,000 tons/day; there are 4 in-hand waste incineration projects, with a production capacity of 2,100 tons/day in the first phase, including self-winning projects with a treatment cost of up to 95 yuan/ton. Ongoing projects will be put into operation in 2020 and 2021, providing a guarantee for the steady growth of the company's performance. We expect the company's revenue in 2020-2022 to be 987.23/1424.89/1963.39 million yuan, up 51.00%/44.32%/37.79% year on year; net profit to mother will be 133.92/190.20/259.34 million yuan, respectively, up 37.90%/42.03%/36.35% respectively; EPS will be 0.81/1.15/1.57 yuan per share, corresponding PE is 15/10/8 times. Referring to the average PE of the four A-share listed companies in 2020, the company's EPS in 2020 was 0.81 yuan/share, with a target price of 16.2 yuan. For the first time, coverage was given, and a “buy” rating was given. Risk warning 1) Investment and construction of sewage treatment plants fell short of expectations, and the capacity utilization rate after commissioning did not meet expectations; 2) Waste incineration plants fell short of expectations, and feed-in tariff subsidies for waste incineration declined; 3) Non-public offerings were not approved, financing conditions were poor, and liquidity was insufficient; 4) Environmental policies have changed significantly, and the government does not encourage investment.