The company's net profit from January to September 2016 decreased by 32.8% compared with the same period last year. The company realized operating income of 235 million yuan from January to September 2016, down 32.8% from the same month last year, and realized net profit of 25.41 million yuan from the same period last year, down 61.1% from the same period last year. In the third quarter, the company realized operating income of 87.06 million yuan, down 22.5%, and increased by 46.5%. In the third quarter, the company achieved a net profit of 10.1 million yuan, down 1.9%, an increase of 122.7%, and earnings per share of 0.03 yuan. The main reason for the sharp decline in the company's performance in the reporting period compared with the same period last year is that 1) the settlement cycle of large orders that the company has undertaken is relatively long, and the revenue side has not yet been reflected. The company has announced that the size of large orders this year is about 220 million yuan, of which there are still about 190 million yuan of outstanding contracts. 2) although the company has recently successfully cut into the business areas of MGGH, sewage treatment, chimney flue and curtain wall, it has not been able to form a scale because its products are still in the promotion period.

Product gross profit margin declined, expense rate increased during the reporting period, the company's comprehensive gross profit margin was 33.1%, down 7.3 percentage points; sales expense rate and management expense rate were 7.0% and 17.9%, both increased by 3.6% and 4.9%; financial expense rate was-0.1%, same drop of 0.3 percentage point. The expense rate during the reporting period was 24.0%, an increase of 8.2 percentage points. In the third quarter alone, the company's comprehensive gross profit margin was 36%, down 1.8 percentage points, with an increase of 10 percentage points; the sales expense rate and management expense rate were 6.0% and 18.0%, respectively, up 1.9 and 1.4 percentage points, and down 1.6 and 2.5 percentage points; the financial expense rate was-0.3%, with a drop of 0.7 percentage points and a ring increase of 1 percentage point. The rate of expenses during the period was 23.7%, an increase of 3.5 percentage points and a decrease of 3.1 percentage points. In the third quarter, the company's comprehensive gross profit margin and period expense rate improved significantly compared with the previous quarter, indicating that the promotion of new products is gradually improving, and expenses are back on the normal track.

Profit forecast and investment advice: the layout of environmental protection continues to advance: the company recently spent 5.1 million yuan to acquire 51% stake in Jinkol Power equipment Company. Kinkel's business focuses on the production and manufacture of MGGH supporting equipment, which is effectively complementary with the company's existing product lines, and the order-taking capacity of MGGH products is expected to be strengthened in the future. The eastern region needs to complete the ultra-low emission transformation of thermal power plants in 2017, and the growth of MGGH business is expected to be realized in the near future. The growth logic has not changed: in the short term, the commissioning of the new production line of the interior facade and curtain wall will ensure the company's ability to obtain and enforce contracts in the boom of rail and infrastructure investment. In the long run, the application field of new enamel materials continues to expand, opening up the growth space of the company. With the accumulation of customer resources in the thermal power field, the company's products have expanded from a single accessory module (enamel corrugated board) in the thermal power discharge system to air preheater, MGGH, chimney flue, sewage treatment and other fields. Although the new product is still in the promotion period, it has great market potential. Recently, the company won the order for the enamel board project of the chimney flue of Ningxia Zaoquan Power Plant, valued at 8.26 million yuan, and the logic of the new enamel material is being constantly verified. Employee stock ownership has been completed. Large contracts will be gradually realized, and the quarterly improvement trend is expected to continue (a low base in the fourth quarter of 15). Rail investment and ultra-low emission transformation of thermal power plant will promote the company's performance growth in the next 2-3 years, and the application field of new enamel materials will continue to expand to create long-term growth space. It is estimated that the net profit of the company in 16-18 years is 79 million yuan, 134 million yuan and 191 million yuan, corresponding to 0.27,0.46 and 0.66 yuan EPS in 16-18 years. Increase the rating.

Risk hint: the promotion of ultra-low emissions of thermal power is not as expected, and the period of revenue recognition is prolonged.