Company background: pioneering Environment (formerly known as New Environmental Energy) is mainly engaged in waste disposal and waste conversion energy business in China. The company's business covers technology development, design, system integration, project investment, consulting, operation and maintenance of waste treatment facilities (especially waste-to-energy projects in China). The company is also engaged in equipment procurement and trading, and provides engineering and technical services and municipal solid waste recycling services. Pioneering shares (600008.CH) took a controlling stake in the company in 2010. After the first share becomes a major shareholder, Chuang Chuang Environment (1) injects capital through a rights issue, (2) acquires profitable assets, and (3) sells loss-making assets. Chuangchuang currently owns 66.92% of the company.

Major acquisitions will be completed in the near future. The acquisition of a 51 per cent stake in BCGNZ Group, its parent company, was completed on September 2, 2016. BCG NZ Group is a leading garbage collection and disposal company based in New Zealand, with a market share of more than 30 per cent in 2015. BCG NZ Group serves more than 200,000 customers with a total processing capacity of 1.43 million tons per year. The purchase price of the deal was HK $1.8166 billion, or 10.9 times 2015 price-to-earnings ratio., 877 shares were paid at an issue price of HK $0.40 per share. In New Zealand, the BCG NZ Group derives its revenue from integrated waste management services including garbage collection, transit station operation, landfill, recycling, hazardous waste disposal and industrial waste disposal. The company's main services include: (I) resident garbage collection: roadside collection and transportation of domestic waste to transit stations or disposal facilities, usually awarded by local councils for long-term contracts; (II) commercial garbage collection: regular and temporary garbage collection and transport from commercial, industrial and construction customers, and transferred to transfer stations or directly to garbage stations (III) solid waste treatment and waste services: development, investment and operation of modern landfills, transfer stations and recovery facilities throughout New Zealand; (iv) liquid and hazardous waste: collection, processing, treatment and recovery of hazardous and non-hazardous liquid waste, medical waste, solids (including packaged goods requiring safe disposal) and solvents. In 2015, the BCG NZ Group owned and managed a fleet of about 800 trucks (each truck has different functions depending on the type of service provided), with a total of 29 garbage transfer stations. In addition, BCG NZ Group also owns, participates in landfills through joint ventures or holds landfill operation contracts in New Zealand. BCG NZ Group also operates liquid and hazardous waste treatment facilities, as well as composting facilities. The acquisition of the BCG NZ Group has significantly boosted the operating performance of the first Environment in 2016, and the results of the BCG NZ Group will be incorporated into the performance of the first Environment on a full-year basis in 2017. Pioneering Environment confirmed third-party professional fees for the acquisition of BCG NZ Group in 2016, but the company will not book any professional fees in 2017. The BCG NZ Group will begin to make greater contributions to the performance of the pioneering environment in 2017. Pioneering Environment can also leverage the expertise of the BCG NZ Group for waste disposal operations, including hazardous waste treatment, rural waste treatment and urban garbage collection projects.

There are plenty of projects on hand. The first environment has a total of 32 projects (involving waste conversion to energy projects, landfills projects, anaerobic digestion technology projects, garbage collection, storage and transport projects, waste electrical and electronic disassembly projects and biomass power generation projects). The annual disposal scale of the company's facilities is about 6.97 million tons, and the annual dismantling capacity of electrical and electronic equipment is about 3.2 million.

Our view: given the weak operating performance of the pioneering environment in the past, it will take time for the market to regain confidence in the company. However, the company has been in a state of recovery since 2015. Since the beginning of 2016, there has been little news about the company because management has been focused on the acquisition and business development of the BCG NZ Group (especially project acquisitions). We believe that the market does not have high expectations for a profit recovery in the pioneering environment, as its 2016 performance is weighed down by acquisition-related professional expenses and project delays. We also believe that, taking into account the company's past performance, the company's valuation is not cheap compared with its peers. However, we believe that after the completion of the acquisition of the BCDNZ Group, the company's operating results and financial position will significantly improve, which will make the shares attract market attention. At present, it is very difficult to predict when the projects acquired by the company will start. However, the company's good number of project orders will bring great medium-and long-term growth potential for the company. Chuangchuang has been building the pioneering environment into a waste disposal business platform, and it is expected to achieve strong growth in 2017.

Considering the improvement of the company's operating performance and the brand effect of the pioneering shares, the trading liquidity of the pioneering environment is expected to increase. The market capitalization of pioneering Environment is HK $3.9 billion, not far from the HK $5 billion threshold included in the Shenzhen-Hong Kong Stock Connect. If the company is included in the trading scope of the Shenzhen-Hong Kong Stock Connect, it will help to improve the trading liquidity of the shares.

Catalyst: announcement of interim results in 2017, successful search for M & An opportunities, news about signing new contracts and launching new projects.