China dredging Environmental Protection (00871 HK) revenue in the first half of 2016 fell 12.6% year-on-year to 346 million yuan (RMB, the same below). Net profit fell 9.5% year-on-year to 62 million yuan. The performance was slightly higher than expected. During the period, the company received 24 million yuan from the sale of its subsidiaries. Sales and administrative expenses increased by 69.2% and 44.3% year-on-year to 6 million yuan and 26 million yuan respectively.

Revenue from infrastructure and reclamation and dredging fell 16.6 per cent year-on-year, and we do not expect the business to recover in the next three years due to reduced investment in domestic waterways and ports, which the company relies too much on. Revenue from environmental dredging and water management fell 20.0 per cent year-on-year, mainly due to weakness in the industry. We expect only a slight increase in revenue in the next three years. The company's overdue accounts receivable of one year or more are still high and we expect to make significant provisions for bad debts in the next few years.

Earnings per share for fiscal year 2016-2018 are forecast to be 0.077 yuan, 0.050 yuan and 0.052 yuan, respectively. We don't see any changes that can improve the fundamentals of the company. We have lowered our target price to HK $0.75, which is equivalent to 8.2 + 12.6 + 12.3 times 2016 / 2017 / 2018 forecast P / E. Maintain a "neutral" rating.