Events:

The company announced that it has signed an "Investment Framework Agreement" with China Energy. China Energy plans to apply to the property Exchange to publicly list its 35% stake in China Machinery Technology by September 30, 2020. the company is willing to participate in the above public listing process with its own capital of no more than 577.5 million yuan. The company signed a strategic cooperation agreement with China Energy to jointly promote the company's business development in the field of environmental protection.

Main points of investment:

Maoming project qualification is scarce, which brings business coordination and performance increment to the environmental protection plate. The project of Maoming Circular economy demonstration Center approved by China Machinery Science and Technology is located in Shuikou Town, Xinyi City, Maoming City, Guangdong Province. After the completion of the project, it is planned to treat and dispose of 140000 tons of hazardous waste a year, involving 36 types of hazardous waste, including 60,000 tons of hazardous waste incineration, 10,000 tons of physicochemical treatment and 70,000 tons of safe landfills. Among them, the safety landfill project is built by stages, the storage capacity of the first phase is 600,000 m3, the second phase is 800,000 m3, and the total capacity is 3 million m3. The service life of the first phase is 7.2 years, and the total service life is 36.1 years. The project has been approved by EIA issued by the Department of Ecological Environment of Guangdong Province. The company's environmental protection project focuses on the economically developed areas of the Yangtze River Delta and Pearl River Delta, and the Guangdong project is expected to cooperate with the company's Heyuan cement kiln collaborative disposal project, and the company's closed loop for hazardous waste disposal is gradually taking shape. This comprehensive incineration + landfill project has scarce qualifications and guaranteed profitability, which is expected to bring a significant profit increase for the company in 2021, promoting the environmental protection sector to become the performance-leading sector to achieve the goal.

Join hands with central enterprises to promote the development of the environmental protection sector and further implement the high-speed expansion strategy of environmental protection. On June 5, the company signed the Strategic Cooperation Framework Agreement with China Energy Engineering Group Co., Ltd., China Energy will actively help Jinyuan to promote the development of environmental protection business, and rely on its operational and management advantages to provide support for Jinyuan's strategic development planning and landing. From the perspective of business cooperation, China Energy and Jinyuan will give priority to each other as partners in upstream and downstream industries in the light of their actual technological conditions in solid waste and hazardous waste treatment and comprehensive utilization of resources. At the same time, China Energy and Jinyuan will make use of their respective advantages for resource integration, the first phase of cooperation on the equity of China Machinery Science and Technology Development (Maoming) Co., Ltd. We believe that the company's cooperation with central enterprises is expected to accelerate the promotion of environmental protection expansion strategy, the first phase of Maoming project is just the beginning, the landing of more projects in the future is worth looking forward to.

Building materials benefit from the reversal of supply and demand in Qinghai, and environmental protection opens a period of rapid growth. We released an in-depth report that the company's building materials business will benefit from the reversal of supply and demand in Qinghai in 2020, and its performance is expected to grow by more than 50%. At the same time, after the company's Guangdong Heyuan project mine evidence is obtained in the future, there is still room for a significant improvement in profitability, and the building materials performance is sustainable. Under the three-pronged approach of coordinated disposal, resource utilization and innocuity of cement kilns of environmental protection companies, we will enter a period of rapid growth in 2020, and the compound growth rate is expected to exceed 40%. Recently, the company issued a fixed increase plan, with large shareholders subscribing for a large amount and introducing Wentinhaichuang Environmental Protection at the same time. This time, the company cooperated with central enterprises to promote project development, and promoted the environmental protection expansion strategy with the help of capital and industry. We believe that the high performance of the company's environmental protection sector is expected to exceed expectations.

Maintain the profit forecast and maintain the "buy" rating: considering that this listing and investment are yet to happen, we maintain the profit forecast. It is estimated that the company's net profit in 2020-2022 will be 946 million yuan, 1.078 billion yuan and 1.217 billion yuan respectively, corresponding to 1.32,1.51,1.70 yuan in 20-22 years. The current stock price corresponds to 8.4times, 7.4times and 6.5times PE in 2020-2022, respectively. Maintain a "buy" rating.