1H16 net profit surged 73% year on year: Yunnan Water 1H16 net profit was 80 million yuan, up 73% year on year, roughly in line with our expectations of 79 million yuan. During the period, total revenue increased 83% year over year to RMB 867 million. The increase was due to (1) revenue from the waste water treatment segment increased 55% year over year to RMB 252 million; (2) revenue from the water supply segment increased by 164% year over year to RMB 309 million; (3) solid waste items contributed an additional RMB 109 million; and (4) design - procurement and equipment sales and operation and maintenance revenue remained flat, divided into RMB 166 million and RMB 32 million. Profit unions are still generally biased towards water treatment business: the total gross profit of 1H16 rose 78% year over year to RMB 278 million. 1H16 wastewater treatment and wastewater operations still accounted for 71% of gross profit, the same as in 1H15. The overall gross margin fell slightly from 33% of 1H15 to 32% because (1) the gross margin of the water supply business was weaker than expected, from 32.6% of 1H15 to 22.7% of 1H16; and (2) the increase in the contribution of solid waste (gross margin was 29%), which slightly weakened the overall gross profit margin. The operating sector maintained steady growth: During the period, total water treatment capacity increased 22% month-on-month to 204 million tons per day, including waste water treatment capacity of 1.23 million tonnes per day and waste water capacity of 810,000 tons per day. The production capacity for waste water treatment and water supply is divided into 900,000 tonnes per day and 500,000 tonnes per day, with average utilization rates of 65.4% and 62.3%. At the same time, the production capacity of the solid waste business in 1H16 operations was 33.1 million tons per year, with an overall utilization rate of 72%. The loan structure for the second half of the year will be more average: the net debt ratio of 1H16 soared to 84% (34% at the end of 2015), mainly due to the company's strong investment in the construction of additional water and solid waste plants and the acquisition of new projects. The ratio of short-term loans to long-term loans in 1H16 is 2:1. Looking ahead, we anticipate that the amount of short-term loans will decline after Yunnan Water Services proposes to issue 1 billion yuan of asset-backed securities and 1 billion yuan of corporate bonds. The company's value will be released one step further: Maintain the purchase rating: We currently maintain the purchase rating of Yunnan Water. Based on the FY16E/17E price-earnings ratio of 12 times /9 times, we believe that the valuation of this stock is still undervalued. The continued smooth execution of the production expansion plan and the improvement of profit quality will further unlock the value of the company. Furthermore, the company's current operating scale is relatively small, and procurement progress is accelerating. In particular, the acquisition of more than 50% of Galaxy Newspring's shares is expected to be a catalyst for an upward valuation.