Incident Overview The company released its report for the first quarter of 2020. During the reporting period, the company achieved operating income of 102.05767 million yuan, an increase of 15.81% over the previous year, and net profit attributable to shareholders of listed companies of 13.689 million yuan, an increase of 35.08% over the previous year. Analysis and judgment: “going against the current trend” during the epidemic, the first quarter's performance grew steadily in the first quarter of 2020. Most companies were affected by the epidemic at home and abroad, and their performance declined markedly. The company actively prevented and controlled the epidemic in the first quarter, made reasonable arrangements to start and resume work, and ensured that the company's operating projects were carried out in an orderly manner under the epidemic. During the reporting period, the company achieved operating income of 102 million yuan, an increase of 15.81% over the previous year; net profit to mother was 14 million yuan, an increase of 35.08% over the previous year. Despite the general decline in the environmental protection industry's performance in the first quarter, the company was still able to guarantee the company's steady growth, highlight the company's strong operation and management capabilities, and enhance investor confidence. The increase in the company's performance was also due to the increase in the scale of the company's sewage treatment project and the commissioning of the new Dejiang waste incineration power generation project. The first waste incineration project was put into operation. In recent years, the company focused on the main sewage treatment business and actively laid out the domestic waste incineration field. Currently, it has formed a two-wing development pattern of “sewage+garbage”. The company continues to strengthen its own business, actively expand and develop new project orders, and the overall scale of operation continues to expand. In the first quarter, the company added 3 new EPC projects, with a total amount of 1.883,500 yuan; 2 new PPP projects were added, with a total amount of 338.88,87 million yuan. The total order amount was lower than in 2019 Q1. The reason was that local government tendering work was delayed due to the epidemic, which is a common problem in the industry. I believe it will return to normal in the second quarter. Up to now, the company has more than 20 sewage treatment projects that have been put into operation, are under construction, and have won bids, with a total production capacity of nearly 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 nearly 500,000 tons/day. In terms of waste incineration, the Neidejiang Waste Incineration Power Generation Project was officially put into operation during the reporting period. This is the company's first waste incineration project officially put into operation. Currently, the company has 4 active 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 yuan/ton. The high-quality project guarantees an increase in performance in the later stages. As waste incineration projects are built and put into operation, 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. The gross margin increased significantly in the first quarter, mainly due to the increase in operating revenue, the company achieved operating income of 102 million yuan, an increase of 15.81% year on year, and net profit of 13.689 million yuan, up 35.08% year on year. The profit growth rate was faster than the revenue growth rate. The main reason was that the growth contribution came from the high gross margin operating sector, which led to a year-on-year increase of nearly 8 percentage points to 41.99% in the first quarter. The company's financial expenses for the first quarter were 17 million yuan, an increase of 108.26% over the previous year, mainly due to accelerated project investment and construction and increased borrowing. However, compared to companies in the same industry, the company's debt structure was dominated by long-term debt, there were few short-term loans, and the debt structure was reasonable. The number of A shares that the company plans to issue 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. Investment proposal The 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 its waste incineration business. The company's business development has maintained a good upward trend in recent years. At the same time, the company is continuously improving cash flow and promoting the construction of the company's projects through bond issuance and fixed increases. Currently, the company has a sewage treatment scale of nearly 500,000 tons/day, with a backup treatment capacity of over 310,000 tons/day; the Dejiang Waste Incineration Power Generation Project has been put into operation in the first quarter, with a production capacity of 2,100 tons/day in the first phase and 500 tons/day. Ongoing projects will be put into operation in 2020 and 2021, providing a guarantee for the steady growth of the company's performance. We maintain our previous profit forecast. We expect the company's revenue to be 987.23/1424.89/1963.39 million yuan in 2020-2022, respectively, up 51.00%/44.32%/37.79%; net profit to mother is 133.92/190.74/259.34 million yuan, respectively, up 37.90%/42.43%/36.03%; EPS is 0.81/1.16/1.58 yuan, corresponding PE is 15/11/8 times, maintaining the target The price remained unchanged at 16.2 yuan/share, maintaining the “buy” rating. Risk warning 1) Investment and construction of sewage treatment plants fell short of expectations, and the capacity utilization rate did not meet expectations at the time of investment; 2) Waste incineration plants fell short of expectations, and feed-in tariff subsidies for waste incineration declined significantly; 3) Environmental protection policies have changed significantly, and the government does not encourage investment.