Main points of investment:

The net profit of 2017H1 home increased by 108.03% compared with the same period last year. The company released its semi-annual report for 2017, with operating income of 343 million yuan, down 25.32% from the same period last year; net profit from home was 25.3054 million yuan, up 108.03% from the same period last year; net profit from non-return was 468400 yuan, down 81.23% from the same period last year; and non-recurrent profit and loss was 24.837 million yuan, including 27.31 million yuan from the sale of idle investment property. The cash flow generated by the company's operating activities in the first half of the year was 28.6031 million yuan, and the net outflow decreased by 50.10% compared with the same period last year, mainly due to increasing repayment efforts and cost control.

The gross profit margin decreased slightly and the cost decreased during the period. 17H1, the company's operating income reached 343 million yuan, down 25.32% from the same period last year. Of this total, the revenue from clean combustion and boiler energy conservation and efficiency was 133 million yuan, down 15.82% from the same period last year; the revenue contributed by the flue gas treatment business was 111 million yuan, down 51.95% from the same period last year; and the revenue contributed by the water treatment business was 79.2082 million yuan, up 23.44% from the same period last year. Garbage power generation business contributed revenue of 20.391 million yuan. The decrease in revenue is mainly due to the decline in revenue from the smoke control business. 17H1, the company's comprehensive gross profit margin was 25.11%, down 2.47% from the same period last year. In terms of products, the gross profit margin of water treatment business ranks first among all businesses, reaching 42.64%; the gross profit margin of clean combustion and boiler energy saving and efficiency improvement business is 29.74%, down 5.70% from the same period last year; and the gross profit margin of flue gas treatment is 17.65%, down 1.42% from the same period last year. 23.30% of the gross profit margin of garbage power generation business. The company's management expense rate and sales expense rate increased, while the financial expense rate decreased compared with the same period last year. In the first half of 2017, the company realized sales expenses of 15.71 million yuan, down 7.44% from the same period last year, sales expense rate of 4.58%, an increase of 0.88% over the same period last year; management expenses of 52.65 million yuan, down 5.50%, and management expense rate of 15.34%, an increase of 3.22% over the same period last year; financial expenses reached 3.87 million yuan, down 70.28% from the same period last year, and the financial expense rate was 1.13%, down 1.70%. Sales expenses and administrative expenses decreased compared with the same period last year, but the expense rate increased, mainly due to the decline in the size of the company's business under fierce competition, and the decrease in scale effect led to the increase in expense rate; the decrease in financial expenses and expense rate was mainly due to the repayment of loans.

Acquire and maintain 70% equity in environmental protection and expand the territory of hazardous waste management. The company acquired and transferred 70% equity of Jiangsu Yongbao Environmental Protection in early August 2017. the transaction consideration is 385 million yuan, and the environmental protection company is mainly engaged in harmless disposal of hazardous wastes and water treatment business. it is promised that the non-net profit will not be less than 45 million yuan for 17 years and not less than 55 million yuan for 18 years. The acquisition will help the company expand its hazardous waste management business.

Profit forecast and valuation. If the company does not consider keeping environmental protection, the company is expected to achieve a net profit of 5780, 6671 and 90.58 million yuan in 17-19, and 8930, 10521 and 129.08 million yuan in 17-19, corresponding to 0.13,0.15,0.18 yuan in EPS. With reference to the valuation of the comparable company, the company was given an overweight rating of 60 times PE in 2017, corresponding to the target price of 7.80 yuan.

Risk hint. The market competition is fierce, the order quantity is lower than expected, the business gross margin drops.