A regional energy supplier relying on the Xinjiang Production and Construction Corps (XPCC). Asa power supplier integrating electricity supply and sales business under the Eighth Agricultural Division of the XPCC in Shihezi, the Company boasts an independent regional power grid. Its core business covers power/heat/natural gas supply, and has operated 1,665MW of installed capacity built independently or based on state-owned assets, and has 2,080MW of installed capacity under construction. In 2013, power supply and natural gas revenues represented 79.5% and 3.9% of its total turnover, and gross margin accounted for 85.6% and 6.4%. Its controlling shareholder is Tianfu Power Group, and actual controller is the State-owned Assets Supervision and Administration Commission of the Eighth Agricultural Division of the XPCC which indirectly holds a 41.6% stake in the Company. Uniquely low electricity tariff underpins businesses from energy-intensivesectors, and organic/inorganic means drive power business to keep growing.The Company has an independent Shihezi power grid with autonomous pricing power. It offers preferential price to major industrial users to attract energy-intensive sectors, and itsaverage selling price for electricity in 2013 was ~Rmb0.15/kWh, lower than that for major industrial users in other areas in Xinjiang. The energy-intensive sectors have become a major booster to its electricity sales volume growth, and improvement in local industrial production capacity in Shihezi boosted its electricity sales volume to increase rapidly; advancement in installed capacity and power grid construction, and breakthroughs in supply bottlenecks will warrant rapid growth in its electricity sales volume. In addition, as the XCCP’s integrated energy platform, the Company has a clear positioning, and it may take advantage of M&As to facilitate grid integration in northern Xinjiang, which should boost its development in the medium to long term. Its electricity supply volume is projected to be 11.0/13.0/15.6tWh in 2014/15/16E (8.5tWh in 2013). Gas filling stations are forecast to expand rapidly, and gas profit contribution is expected to keep improving. The Company relies on main traffic trunks in Xinjiang to build urban natural gas pipeline network and filling stations, and it is rapidly boosting its cross-region presence; its construction and acquisition of gas filling stations will propel the number of its gas filling stations to increase at an accelerated pace. 16/32/50 gas filling stations are projected to be operated in 2014/15/16E, and gas for vehicles will drive its natural gas earnings to register a rapid growth. Making presence in shale gas will underpin gas source, and silicon carbide business may become an X factor.Shale gas and other unconventional natural gas development is greatly encouraged by policies. China bounds in shale gas resources, and Xinjiang is home to such resources. The Company partners with Hubei Shale Gas to accelerate exploration of shale gas in Xinjiang, which will provide natural gas business development with multiple gas sources. In recent years, it has been endeavouring to spin off auxiliary businesses with unpleasant economic benefits, and the retained silicon carbide business remains in R&D and market development period, which should accrue insignificant earnings in the short term. Yet, if breakthroughs can be made in technology or market development, silicon carbide business will become another shinyspot to boost the Company’s growth. Potential risks: (i) the Company’s earnings is highly susceptible to economic environment and environmental protection policies as electricity it generates is mainly used by customers from heavy industry, (ii) coal price rise arising from resource tax and huge demand due to relatively low coal price in Xinjiang, and (iii) expiry of lockup on 183mn shares on 19 Mar out of all shares under private placement (at an offering price of Rmb7.55 per share) in 2013. Earnings forecast, valuation and investment rating. In 2013, forecast-beating labor cost due to wage adjustment and average annual wage increase and special bad debt impairment totally reduced EPS by Rmb0.11, which was a major contributor to lower-than-expected earnings; thanks to the advantage of low electricity tariff and regional expansion, the Company’s electricity and gas businesses are projected to propel its earnings in future to grow rapidly (CAGR of ~14-16% in 2014-16E). We forecast its 2014/15/16E EPS to be Rmb0.52/0.67/0.82 (including Rmb0.48/0.61/0.73 accrued by electricity business, and Rmb0.03/0.06/0.09 by gas business), implying 2014/15/16E PE of 14.9/11.6/9.5x. Factoring in Xinjiang’s outstanding advantage in shale gas resources and regional development to be further facilitated by national policy support, we initiate coverage of it with a “BUY” rating with its target price at Rmb10.4 per share (implying 2014E PE of 20x).

Investment Highlights In-lineEPS of Rmb0.94 in 2013.In 2013, the Company raked in Rmb3.13bn in turnover (+76.9% YoY), Rmb1.97bn in operating cost (+94.3% YoY), and Rmb80mn in net profit attributable to shareholders (+49.3% YoY). ItsEPS of Rmb0.94 met expectations.It plans to pay out Rmb0.71 of cash dividend (tax inclusive) plus 2 bonus shares for every 10 shares outstanding.In 4Q13, intensive project settlement boosted its turnover to surge 329.0% QoQ and 76.2% YoY, and 4Q13 EPS stood at Rmb0.79 (+2,22.3% QoQ/+54.9% YoY), showing notable seasonal features. Additionally, it forecast 1Q14E net profit to increase 30-40%. Changes in turnover breakdown dragged down gross margin, and 4Q13 cash flow improved. In 2013, the Company’s consolidated gross margin came in at 37.2%, down 5.6pptsYoYdue to increase in the share of low-marginwater supply and drainage business (from 19.3% to 34.9%, gross marginwas only 21.0%). Gross margin of sewage solutionbusiness stoodhighat 45.3% (-3.5ppts YoY). Due to the impact of slowing macro economy and fine-tuning of local government debt policies, payment of government customers was affected. Thispropped up receivables to increase 96.3%YoYto Rmb1.28bn, in which, 82.4% were aged less than one year and due from quality major customers, showing relatively slight risk. Quarterly, fund collection at end-2013 fueled a turnaround in operating cash flow, which grewto Rmb670mn in annual 2013 compared to-Rmb720mn in 1-3Q13. Given upgradeof water standardsand water resource shortage, implementation of the clean water plan may accelerate adoption of membrane technology. With constant implementation of policies for energy conservation and emissions reduction and the 12thFive-Year Plan, areasthat are sensitive towater environment and those with scarce water resource will need to upgradesewage treatment plantsin order to meet the elevated discharge standard. Additionally, the Ministry of Environmental Protection is drawing a water pollution control action plan, which could propose to eliminate the use of inferior Class-V water. Given China’s limited environmental capacity and unique advantage of membrane technology in quality water output, the said technology is projected to enjoy a huge market for promotion and application. Mixed ownership is extending, and JVs and M&As will boost the Company’s development. The Company develops business based on amixed ownership system,and effectively exploresJVs and M&As. On the basis of its presence in such existing markets as Beijing, Yunnan, Jiangsu, Inner Mongolia,Hubei, Hunan, Xinjiang, and Shandong, it has continued to build presence in South China, Shanxi, Qingdao, Jilin, and Wuhan markets through regional JVs since 2013, and further stepped up its cooperation in the existing markets by increasing stake in JinjianWater. In 2014, it will keep settingup JVs with local governments to upgrade, transform, and expand the capacity of sewage treatment plants, and carry out new business models such as project PPP, financing lease, and water fund, in an effort to expand its membrane and product application market. Moreover, it is seeking appropriate M&A targets at home and abroad, in a bid to accelerate its development through investment or M&As. Potential risks: (i) Heavy reliance on government’s fiscal spending, (ii) collection of receivables, (iii) smaller-than-expected orders, and (iv) expiry of lockup on restricted shares. Reiterate “BUY” rating.Given that a) the Company has ample orders in hand and b) that policies are projected to boost thedemand for membrane technology, we lift its 2014/15E EPS to Rmb1.39/1.98 (from Rmb1.35/1.90), and project its 2016E EPS at Rmb2.72. Its last share price implies 2014/15/16E PE of 23/16/12x. Factoring in its high growth of earnings, growing expectations for upgradeoverhaul afterrollout of the pollution control action plan, and the sector’s average valuation, we set its target price at Rmb41.8 (implying 2014E PE of 30x), and reiterate “BUY” rating.

工业危废处理综合服务提供商。公司核心主业为工业废物处理,已形成“减量化、无害化、资源化”完整产业链,具体可分为资源化利用产品销售与无害化处理处置;此外,公司积极拓展市政废物处理、配套发展环境工程及服务和贸易及其他等增值性业务。2013 年中报显示,公司工业废物资源化利用、无害化处理处置以及市政废物处理处置收入占比分别为62%、16%、9%,毛利占比分别为55%、29%、5%。公司实际控制人为董事长张维仰先生,直接持股比例为28.7%。 广阔危废市场启动在即。预计我国2015 年危废产生量将超过6,000 万吨,其潜在无害化处理需求或达600 亿元。而我国危险废物无害化处置能力建设滞后较为严重,每年通过持证单位处理的危险废物占比不到全国危废产生量的20%。“两高”司法解释颁布后,规范化运作的危废设施处理需求快速提升,危废处理将倒逼地方政府通过扩容现有设施、加快新项目建设等方式增加当地处理能力供给。此外,垃圾发电兴起或成危废加速另一助推器,飞灰进入危废中心实施无害化处理将是必然趋势,对应市场近30 亿元。 产能释放助推业绩高增期到来。目前公司危险废物处理资质量约为42 万吨/年,未来粤北(55 万吨/年)与江门(20 万吨/年)两项目有望自2014年下半年开始逐步投产,合计新增处理能力将使得公司资质量增至117 万吨/年(增幅近180%),这将对公司2015~2016 年业绩增长形成重要支撑。 此外,公司现有多个基地均有望在2014~2016 年实现危废处理资质量不同程度扩充,例如沙井、惠州东江、东江威立雅、龙岗、珠海清新、东莞恒建等,从而成为公司处理能力提升及业绩增长的另一重要驱动因素。 外延式扩张值得期待。我国危废行业呈现市场分散、行业不规范等特点,随着行业监管趋严,集中度有望不断提升。在此背景下,我们看好公司未来不断通过兼并收购来实现快速发展。自上市以来,公司已经通过一系列并购积累了较为丰富的整合经验,后续进展值得期待。特别是针对目前仍没有建设危废中心或运行不佳的省份,均为公司提供了良好的发展和扩张机遇。截至2013Q3,公司账面货币资金余额近10 亿元,资产负债率仅为27%左右,良好的财务状况为后续并购及扩张战略的实施奠定了坚实基础。 风险因素。宏观经济波动致使公司工业废物业务量及毛利率变动幅度超预期;项目投产进度慢于预期;增值税退税进度慢于预期;限售股解禁等。 上调盈利预测,维持“买入”评级。基于公司股权激励授予后股本扩张,小幅调整2013~2014 年盈利预测至0.93/1.18 元(原为0.95/1.21 元);考虑粤北、江门等重要新增项目投产进度或快于此前预期以及现有沙井等基地资质量扩容因素,上调2015 年盈利预测至1.80 元(原为1.63),并新增2016年盈利预测2.85 元。由于公司即将步入业绩快速增长期(2015~2016 年业绩复合增速或达56%),市场对于公司关注点也将逐步由周期性转向成长性。 综合考虑公司所在危废领域广阔的发展前景、废物资源化与无害化业务长期持续成长性较强、新项目产能集中释放带来2015 年及以后业绩高增、以及公司并购扩张战略有望不断实施等因素,并参考行业平均估值水平,给予公司2015 年28 倍P/E,对应目标价50 元,维持“买入”评级。