Incident Overview The company released its 2020 semi-annual report. During the reporting period, the company achieved operating income of 340 million yuan, an increase of 56.81% over the previous year, net profit attributable to shareholders of listed companies of 52 million yuan, an increase of 70.82% over the previous year; basic earnings per share were 0.32 yuan, an increase of 68.42% over the previous year. Analysis and judgment: The performance in the first half of the year was impressive, exceeding our previous expectations. In the first half of 2020, the company achieved operating income of 340 million yuan, an increase of 56.81% year on year; net profit to mother was 52 million yuan, an increase of 70.82% year on year, exceeding our previous expectations. The company achieved a rapid increase of 35% in net profit due to the impact of the epidemic in the first quarter. In the second quarter, with domestic resumption of work and production returning to normal, revenue grew by 84%, net profit to the mother increased by 81%, and the results in the second quarter were impressive in the environmental protection industry. By business type, the operating business achieved revenue of 126 million yuan in the first half of the year, an increase of 36.05% over the previous year, and a gross margin of 56.23%, an increase of 3.92 pct over the same period of the previous year; engineering contracting services achieved revenue of 213 million yuan, a year-on-year increase of 72.57%, and gross margin of 22.63%, an increase of 6.79 pcts over the same period last year. Benefiting from the rapid growth rate of the two main businesses of operation and engineering services, the company achieved impressive results in the first half of the year. Ongoing orders were executed well, and market development was very effective. In the first half of 2020, the company built projects such as the Zhejiang Quzhou Chengdong Sewage Treatment Plant Construction Project, the Hefei Shushan District Western New Town Sewage Treatment Plant Construction Project, the Guangde Shijie Town Sewage Treatment Plant Construction Project, the Feixi Sanhe Town Sewage Treatment Plant Construction Project, and the Jiuchengfan Farm Regional Domestic Sewage Treatment Plant Construction Project were all constructed according to the planned schedule. In addition, the company has successfully expanded environmental engineering business orders in related fields such as leachate. In the first half of 2020, the company added 14 new EPC orders, with a total amount of 252.698 million yuan; added 2 BOT projects with a total amount of 472.1896 million yuan; and added 3 PPP projects, with a total amount of 374.7026 million yuan. Even due to the impact of the epidemic, the total number of new orders added by the company during the reporting period increased compared to the same period last year. Currently, the company has unconfirmed revenue of 546 million yuan in EPC orders, 1.6 billion yuan in uninvested franchise orders, and the company's 2019 engineering service revenue of 465 million yuan. The company's sufficient on-hand orders can guarantee that the company's engineering business revenue continues to grow. Furthermore, in June 2020, the company and Shanghai Kangheng Environmental Co., Ltd. reached a strategic partnership in the field of waste incineration power generation. Although the company is a newcomer in the waste incineration field, I believe that with Kangheng's position as a major player in the industry, the company will make a big difference in the field of waste incineration and leachate treatment. The scale of operation continued to expand, helping the “sewage+garbage” two-wing development report period. During the reporting period, the scale of the company's sewage treatment and waste incineration operations continued to expand, and the operation of the commissioning project met the operating standards, helping the company's “sewage+garbage” two-wing development. In the first half of 2020, in terms of sewage treatment projects, the company completed the sewage treatment plant project in the dry port logistics park project in Yangxin County, Yangxin County, Binzhou City; the Anqing Mawo Sewage Treatment Plant project completed the bid upgrade and transformation; the Zouping Changshan Sewage Treatment Plant Project and the Lujiang Fanshan Town Alumina Water Treatment Plant Project were put into operation; the company successfully won the PPP project for the Dalian Hongling Road Sewage Treatment Plant Project, Pingyin City Sewage Treatment Plant Project and signed a contract. It also launched the second phase expansion of the Xiajin Sewage Treatment Plant project, Tai'an Sewage Treatment Plant 2 Sewage treatment plant project bid upgrade Remodeling. In terms of the waste incineration project, the Dejiang project, as the company's first domestic waste incineration power generation project, was successfully put into operation in early 2020, and all production indicators were at the leading level in the industry; the Huimin project progressed according to the construction schedule, and had completed the factory electricity reversal by June 2020, and is expected to be put into operation in September 2020; the Chengde project is in the contract negotiation and pre-construction preparation stage; the Xixiang project is steadily advancing procedures such as early EIA and project approval, and the commissioning schedule has already been reversed. In terms of sludge disposal projects, the company's full pepper project has been initially completed. Currently, in the trial production stage, the sludge disposal effect is good, and the product quality has reached the specified standards; the Lankao project, the Tai'an project, and the Ningyang project are also progressing smoothly. In addition, the company received approval from the China Securities Regulatory Commission for non-public offering in June 2020. The offering raised a total of 550 million yuan 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. The issuance is expected to be completed after 1-2 months. After the fixed increase is completed, the company's balance ratio will drop to about 50%, which is conducive to optimizing the capital structure, reducing financial expenses, making up for the capital gap in the company's rapid development process, and providing a reliable guarantee for the company's rapid sustainable development. Investment proposal The company has formed a “sewage+garbage” two-wing development pattern. The sewage treatment business and waste incineration business go hand in hand, helping the company's performance grow rapidly. At the same time, the strategic cooperation between the company and Kangheng Environment will promote the steady expansion of the company's industrial layout, and approval of the non-public offering will ensure that the company's operation and management are more stable. Currently, all sewage projects under construction by the company are progressing steadily. The Huimin waste incineration project is expected to be put into operation in September this year, and the scale of operation will continue to expand to ensure the company's performance. Under the influence of the epidemic, the company still achieved impressive results in the first half of the year. We raised our previous profit forecast. We expect the company's revenue to be 10.31/15.15/2.21 billion yuan in 2020-2022, up 57.6%/47%/45.9% year on year; net profit to mother was 1.56/2.36/ 334 million yuan, respectively, up 60.6%/51.7%/41.2% respectively; EPS was 0.95/1.44/2.03 yuan, corresponding PE was 13/9/6 times higher, and the target price was raised to 13/9/6 times 19 yuan/share, maintaining a “buy” rating. Risk warning 1) Project construction progress and capacity utilization fall short of expectations; 2) Waste incineration feed-in tariff subsidies have declined significantly; 3) Environmental protection policies have changed significantly.