Company News The company released its 2020 semi-annual report. In the first half of the year, the company achieved operating income of 340 million yuan, an increase of 56.81% over the previous year; achieved net profit due to mother of 52 million yuan, an increase of 70.82% over the previous year, after deducting net profit of 51 million yuan, an increase of 72.97% over the previous year; and basic earnings per share of 0.32 yuan. Case review: The expansion of the two main businesses contributed to rapid growth in performance. The gross margin increased slightly, and the company's performance growth rate in 2020 was impressive, mainly due to the increase in the scale of engineering and water operations and the commissioning of new solid waste projects. The company achieved a 56.81% year-on-year increase in revenue in the first half of the year. Among them, the investment and operation business benefited from the increase in the scale of operation and the commissioning of the Dejiang Waste-to-energy Project in the first half of the year, and revenue reached 125 million yuan, an increase of 36% over the previous year. The engineering business benefited from the promotion of ongoing projects, with revenue of 213 million yuan in the first half of the year, an increase of 73% over the previous year. The company's overall gross margin was 35.18%, a slight increase of 3.6 pct over the previous year, mainly due to a significant increase in the gross margin of the environmental engineering business, which accounts for a relatively large business structure. The gross margins of the environmental engineering business and sewage treatment business increased by 6.79 pct and 3.93 pct, respectively. Expense side company financial expenses increased 114.17% year on year, mainly due to an increase in the scale of financing and accruing interest on convertible bonds. The fee rate for the period was 15.63%, a slight increase of 0.80 pct over the previous year. Basically, it remained stable. Overall, the company's expense control was relatively good. The company's accounts receivable and bills receivable account for a relatively stable share of 35.94%, a slight increase of 1.17pct from 34.77% at the end of 2019. From a business perspective, the company's revenue from the sewage treatment business is confirmed on a monthly basis. The average credit period is 3 to 4 months. The environmental engineering business collects payments in stages according to schedule, and accounts receivable have basically remained stable. In terms of cash flow, after excluding cash expenses paid from concession investments, the company achieved a cash flow of 367.7747 million yuan in the first half of the year, which is basically in line with the company's net profit, and the company's cash flow situation is good. The company's operating scale has grown steadily, and the water environment treatment project is progressing in an orderly manner. The waste incineration project is progressing in an orderly manner. The sewage treatment plant project in the dry port logistics park in Yangxin County, Binzhou City was completed in the first half of the year, the Anqing Mawo Sewage Treatment Plant project completed upgrading and renovation, the Zouping Changshan Town Sewage Treatment Plant Project and the Lujiang Fanshan Town Alum Mine Water Treatment Project were put into operation, and the scale of the sewage treatment business continued to expand. In the first half of the year, the company added 5 new operating project orders, with a total amount of 846 million yuan, an increase of 25.15% over the previous year. A total of 17 orders were placed during the operation period, and operating revenue reached 125 million yuan, an increase of 35.86% over the previous year. As subsequent waste incineration projects are put into operation to bring new growth points, the scale of operating revenue is expected to increase further. The company's solid waste treatment business expanded smoothly, and the dual main business pattern initially formed the company's first domestic waste incineration power generation project (Dejiang Project) successfully put into operation in early 2020, with normal operation conditions and good project benefits; the Huimin project progressed according to the construction schedule and entered the single unit and division commissioning stage, which is expected to be put into operation before the end of the year; the Chengde project is already in the pre-construction preparation stage. In terms of sludge disposal business, the Quanjiao Project is currently in the trial production stage, and the sludge disposal results are good. The Lankao Project, Tai'an Project, and Ningyang Project are also progressing smoothly. The company's solid waste business is expanding smoothly, and all of its projects are expanding in an orderly manner. In addition, the company reached a strategic partnership with Shanghai Kangheng Environmental Co., Ltd., and the two sides cooperated in the field of waste incineration power generation, which helped the company obtain more business resources and support in solid waste disposal, garbage disposal and other business fields. There are sufficient on-hand orders to guarantee subsequent performance growth. Judging from the order amount, the company added a total of 253 million yuan in EPC orders in the first half of the year, and a total of 546 million yuan in unconfirmed revenue from on-hand orders, an increase of 87.63% over the previous year; the total amount of new operating projects was 846 million yuan, and the total investment amount for operating projects was 1,613 billion yuan. Rich financing channels. The company's non-public stock offering plan has been reviewed by the Securities Regulatory Commission to actively explore various financing channels. The company's non-public stock offering plan has been reviewed by the Securities Regulatory Commission and plans to raise 550 million yuan, mainly for the Huimin County Domestic Waste Incineration Power Generation Project, Tai'an Daiyue Xinxing Industrial Park Integrated PPP Project and supplementing the company's working capital, which is conducive to solving the capital gap caused by the company's rapid development and further optimizing the company's asset liability structure. The investment recommendation is to “carefully increase” the rating within the next six months. It is predicted that in 2020-2022, the company will achieve net profit of 128 million yuan, 196 million yuan, and 303 million yuan respectively, with year-on-year increases of 31.78%, 53.00%, and 54.95%, respectively; EPS was 0.78 yuan, 1.19 yuan, and 1.84 yuan, respectively, with corresponding dynamic price-earnings ratios of 20.15 times, 13.17 times, and 8.50 times, respectively. The scale of the company's operations grew steadily, and the dual main business pattern of water treatment+solid waste began to emerge. Joint efforts were made to increase performance. Ongoing orders were sufficient, and there was plenty of room for subsequent performance release. For the first time, the company was given a “careful increase in wealth” rating. Risks indicate the risk that gross margin will decline due to increased competition in the market; the risk that financing improvements will not meet expectations; and the risk that project progress will not meet expectations.