Event: the company released its annual report for 2020, with an operating income of 1.242 billion yuan in 2020, an increase of 0.84% over the same period last year, and a net profit of 169 million yuan, an increase of 8.37% over the same period last year. The company also released its quarterly report for 2021. 2021Q1 achieved operating income of 184 million yuan, an increase of 10.02% over the same period last year, a net profit of 29 million yuan, an increase of 27.92% over the same period last year, and a non-return net profit of 25 million yuan, an increase of 104.73%.

The epidemic situation and product structure adjustment put pressure on the profitability of equipment sales, and operation services returned to steady growth. Complying with the development trend of environmental protection equipment manufacturing industry, the company tries its best to build a technology research and development system with "technology platform-product line-product" as the main axis. However, under the pressure of the equipment sales profitability affected by the epidemic, the sales of complete sets of water treatment equipment increased by 144% to 466 units in 2020 compared with the same period last year, but most of them were rural sewage treatment integrated equipment with lower prices, so the average unit price decreased by 64.5% to 880,000 yuan per set. The sector achieved operating income of 410 million yuan,-14.11% year-on-year, and gross profit margin fell 7.04 pct to 36.84%. Centrifuge sales decreased by 8.90% to 1290 units compared with the same period last year, the sector achieved operating income of 261 million yuan,-13.16% year-on-year, gross profit margin fell 2.65 pct to 28.77%. The company's operating services returned to steady growth, achieving operating income of 444 million yuan in 2020, an increase of 33.05% over the same period last year, accounting for 35% of operating income, and gross profit margin increased by 1.34 pct to 46.83%. 2021Q1, benefiting from the favorable environment in which the COVID-19 epidemic in China has been well controlled, the company's business has been carried out in an orderly manner, superimposed by the low base under the influence of the 2020Q1 epidemic, and the company's revenue and profits have achieved steady growth.

In the first year of the 14th five-year Plan, the company will take the internal market of China Construction system and the strategic cooperation units established by China Construction system as an opportunity to innovate cooperation models and strategies, speed up the exploration of new areas of environmental protection business, and create new performance growth points. China Construction Group became the actual controller of the company in January 2019. After China Construction Group took over, through "resources + funds", on the one hand, it helped the company get rid of potential debt problems, on the other hand, China Construction Group was able to develop environmental protection business on the platform of China Construction Environmental Energy. We divide the environmental protection industry into three stages: "state-owned assets save life-- state-owned assets holding-- coordinated development". At present, the industry as a whole is moving towards the third stage. In the future, China Construction Group is also expected to integrate its environmental protection business, while helping the company break through the ceiling of the industry segment, while bringing municipal engineering project resources to the company, and further thickening the company's performance.

Maintain a "buy" rating. According to the company's equipment sales and on-hand orders, the company lowered its 22-year profit forecast and introduced a 23-year profit forecast. It is estimated that the company's 21-23 net profit will be 2.15 EPS 2.52 billion yuan (down 6.5% / 5.5% / new), and the corresponding PE for 21-23 will be 0.32 pm 0.45 yuan, and the current stock price for 21-23 will be times that of 14-12-10. We believe that in the follow-up, China Construction Group will continue to bring new business resources to listed companies, and under the background of mixed reform of state-owned enterprises, China Construction Group is expected to expand related business on the platform of listed companies, further increase the company's business and assets, and maintain a "buy" rating.

Risk hint: the company's original business development is lower than expected; the support of China Construction Group is lower than expected.