The company received notice from Zhejiang Fuchunjiang Environmental Protection Technology Research Co., Ltd on December 23, 2020. The group standard of "Technical requirements for on-line Detection system of dioxin Laser Ionization time-of-Flight Mass Spectrometry" (T/CAEPI 28-2020) jointly compiled by Zhejiang University Editor-in-Chief, Research Institute and other enterprises was formally approved by China Environmental Protection Industry Association on December 22, 2020. The standard will be formally implemented on January 1, 2021.

Comments:

The group standard specifies the relevant technical requirements for the first time, which has important guiding significance for the corresponding product design and application, and will promote the development of the company's new business related to environmental protection in the long run. The group standard defines the technical requirements of the on-line detection system of dioxin laser ionization time-of-flight mass spectrometry in municipal solid waste incineration flue gas for the first time, which is suitable for the on-line detection of dioxin toxic equivalent concentration in municipal solid waste incineration flue gas; at the same time, it will have important guiding significance for standardizing the design, equipment level and engineering application of dioxin laser ionization time-of-flight mass spectrometry online detection system. The research institute of the company's holding subsidiary is the compilation unit of the group standard and the research and development unit of the dioxin online detection system. The release and implementation of the standard will promote the production and application of the dioxin online detection system. The release of the standard will not have a significant impact on the company's production and operation in the short term, but in the long run, it will promote the development of the company's new environmental protection business.

The demolition and withdrawal of the factory area of the parent company affects the current performance, but the demolition compensation can speed up the layout of the company's energy-saving and environmental protection business and promote strategic transformation. In August 2020, the company received the "notice on starting Enterprise withdrawal" issued by Hangzhou Fuchun Bay New Town Management Committee. In order to promote Fuyang's full integration into Hangzhou and implement the development strategy of supporting the river, Fuyang District Government plans to demolish the factory area of Fuchun environmental protection parent company. In December 2020, Fuchun Environmental Protection New Materials Co., Ltd., a wholly owned subsidiary of the company, has stopped production. The relocation and withdrawal of the factory area of the parent company will have a negative impact on the current business of the company, but the company will receive compensation for demolition and use its own funds and compensation to speed up the layout of energy saving and environmental protection business. In the future, the company plans to refine the industry of deep solid waste, hazardous waste disposal and resource collaborative recycling, promote the industrialization of a complete set of environmental monitoring systems, and promote and replicate the circular economy model of "solid waste and hazardous waste disposal + energy-saving and environmental protection services + environmental monitoring and management". Therefore, the removal and withdrawal of the factory area of the parent company will promote the strategic transformation of the company to an integrated service provider of energy conservation and environmental protection.

Profit forecast and rating: in the first three quarters of 2020, the company achieved operating income of 3.29 billion yuan, an increase of 21.6% over the same period last year, and a net profit of 215 million yuan, an increase of 3% over the same period last year. There is a performance promise in the share transfer Agreement signed between Communication Group and Shuitian Group, the controlling shareholder of the company, that the net profit of the listed company in 2020 shall not be less than 150 million yuan, the total net profit in 2020-2021 shall be no less than 350 million yuan, and the total net profit in 2020-2022 shall be no less than 600 million yuan. The company is expected to achieve net profit of 240 million yuan, 190 million yuan and 250 million yuan respectively from 2020 to 2022. The current stock price is 21 times the valuation of PE in 2020, maintaining a prudent recommendation rating.

Risk hint: the progress of new business development of environmental protection is not as expected, and the market is systemic risk.