Environmental PPP projects gaining momentum.

An eventful week with a number of positive surprises; Buy.

On 13 October, MoF released a mega batch of PPP demonstration projects.

Among total Rmb1.2trn investment for these PPP projects, environmentalprojects account for 20%, according to our environmental research team in thelatest sector update. We expect roll-out of environmental PPP projects tospeed up ahead, which in turn should help drive earnings upside.

Growth picked up significantly in 3Q, with 9M results now ahead of DBe.

FPI released 3Q profit guidance post market on 14 October. The numberssubstantially beat, with NP growth in 3Q reaching 116-178% YoY. Along with1H (+7% YoY), 9M NP has achieved 60-90% YoY growth, ahead our full-yearestimate of 51%. We see upside potential to our full-year earnings estimatesshould such strong momentum persist into 4Q. Moreover, with theannouncement of mega batch of PPP projects by MoF on 13 October, the rolloutof environmental PPP projects are likely to accelerate, which in turn coulddrive earnings upside. Indeed, FPI just announced its very first megaenvironmental PPP project (Rmb1.25bn) this Friday. Maintain Buy.

In fact, along with the 3Q profit guidance, FPI also announced its very firsttender win in environmental PPP project – Huangshan Puxi RiverComprehensive Treatment project, the framework of which was signed inAugust 2015. Based on the announcement, this Rmb1.25bn PPP project wasawarded to the consortium led by FPI (other companies involved includingChina State Construction, UP+S and Nanjing Municipal Design Institute). Webelieve this project win could significantly enhance FPI’s earnings visibility inthe coming years given the substantial size (vs. FPI’s sales of Rmb1.8bn in2015).

3Q NP is guided at Rmb163-210m, up 116-178% YoY, likely driven byaccelerated revenue recognition for EMS business, which recorded a top-linedrop of 2% in 1H. While we do expect growth to pick up in 2H (see our 1H16result review), the strength in 3Q still caught us a big surprise as it brings 9MNP to Rmb248-295m (+60-90% YoY), achieving 66-79% of our full-yearestimate vs. historical average of 55% during 2010-15. FPI is scheduled torelease its detailed 3Q results on 24 October.