Matters: Dayou Energy's revenue in 2014 was 7.48 billion yuan, YOY decreased 33%; gross profit margin was 25%, YOY fell 4.9 points; net profit attributable to the parent company was 111 million yuan, YOY decreased by 90.7%, EPS was 0.02 yuan, and cash was sent 0.15 yuan (tax included) for every 10 shares. Comment: 1. Commercial coal production was 18.57 million tons, down 11.7% year on year, and sales were 16.95 million tons, down 19.4% year on year. In 2014, the company's unproductive expenses saved 222 million yuan compared to the plan, down 27.8% year on year, and the gross profit margin of coal products was 31.7%, down 6 percentage points year on year. Due to the dilution of revenue from coal trade, the comprehensive gross profit margin was 25%, down 4.9 percentage points from the previous year. The operating conditions of the core subsidiary in 2014 were as follows: the wholly-owned subsidiary Yiluo Coal had a net profit of 55.25 million yuan, and the wholly-owned subsidiary Tieshenggou Coal had a loss of 169 million yuan. Tianjun Yihai, the wholly-owned subsidiary with the highest profit, was affected by declining sales. In 2014, it only achieved net profit of 74.14 million yuan, while in 2013 it achieved net profit of 560 million yuan. Ligou Coal, which holds 51% of the shares, lost 13.88 million yuan, while the Yi'an Coal Industry, which holds 50.5% of the shares, lost 1.25 million yuan. The key to determining whether Dayou Energy can make a profit in the future is Tianjun Yihai. If Tianjun Yihai's profit recovers, it can ensure that Dayou Energy remains profitable as a whole, and Dayou Energy's production capacity of around 16 million tons in Henan headquarters will be difficult to achieve profits for the next two years. 2. Reduce wealthy personnel, enrich the first-line production team, and improve commercial coal quality requirements. The total number of employees has been controlled, job adjustment arrangements for nearly 7,000 people have been completed, 52 institutions have been abolished, the number of cadres has been reduced by more than 400, the salary structure has been adjusted, and the share of income of frontline employees has increased. Due to market pressure, the company's coal quality requirements for various units have increased, from simply focusing on production volume in the past to focusing on effective calorific value while deep-processing coal to reduce sulfur content to meet market needs. In the 2015 performance guidelines, the company targets 19.57 million tons of coal production and sales, and strives not to lose money or keep losses within 500 million yuan. Key future highlights: 3. The only coal listing platform under the actual controller, there is strong demand for securitization of extracorporeal coal assets. The actual controller, Henan Energy & Chemical Group, has two listing platforms, Silver Ge Investment and Dayou Energy. Among them, Silver Ge Investment is proposed as the group's non-coal business listing platform, and Dayou Energy is the coal business listing platform. Dayou Energy's coal output is about 20 million tons per year, while Henan Energy & Chemical Group produced 106 million tons in 2013. The market is looking forward to subsequent asset injections. Investors are most concerned about the coal assets of Xiayong Coal Company of Henan Energy and Chemical Group. Yongmei's large mine in Shangqiu produces high-quality anthracite, has high sales prices, and is in the same coalfield as another listed company, Shenhuo Co., Ltd. Yongmei Company has 790 million tons of recoverable reserves in Shangqiu, with an annual output of more than 16 million tons. It is the highest quality coal asset within the Henan Energy and Chemical Group. Even with the current sharp drop in coal market prices, the net profit of tons of coal is still expected to exceed 50 yuan, and the market is looking forward to injecting this part of the coal assets. 4. State-owned enterprise reform is worth looking forward to and is a potential catalyst. In October 2014, Henan Province identified pilot units for state-owned enterprise reform. The eight provincial management enterprises responsible for the first batch of reform pilot tasks were: Henan Energy & Chemical Group, China Pingmei Shenma Group, Angang Steel Group, Henan Investment Group, Henan Aviation Investment Company, Zheng Coal Engine Group, Luoyang Monocrystalline Silicon Group, and Henan State Control Group. Among them, three enterprises, Henan Energy & Chemical Group, China Pingmei Shenma Group, and Zheng Coal Machinery Group, are also undertaking “testing the waters” for market-based selection and recruitment of professional managers while piloting the mixed ownership economy. (Dahe.com: http://news.dahe.cn/2014/10-11/103592560.html)目前国企改革的试点公司正在加速推进,从新闻报道中,我们可以清晰的看到这一点. In February 2015, Henan Province held a state-owned enterprise reform and state-owned assets supervision work conference. Vice Governor Zhang Weining, who is in charge of industry, “put forward new requirements for the reform and development of state-owned enterprises this year. More measures should be taken to promote the stable and healthy development of enterprises, deepen reforms to comprehensively stimulate enterprise vitality, highlight innovation and accelerate the pace of transformation and structural adjustment, strengthen the supervision of state-owned assets, and further promote the construction of a clean party style and government and the fight against corruption.” Referring to the case where A-shares have already carried out state-owned enterprise reform, we expect that Henan Energy & Chemical Group's reform plan cannot bypass the coal listing platform Dayou Energy. After all, coal is the core business of Henan Energy & Chemical Group. Compared with another listed platform, Silver Ge Investment, Dayou Energy has an advantage. The only flaw is that Dayou Energy is being investigated by the Securities Regulatory Commission due to information disclosure violations. 5. Profit forecast. Combining factors such as coal sales prices and production costs, we forecast net profit attributable to the parent company in 2015-2017 to be 46 million yuan, 95 million yuan, and 195 million yuan, respectively, based on the latest share capital of 2,391 million yuan, corresponding to the 2015-2017 EPS 0.02, 0.04, and 0.08 yuan. Profits are low, PE valuations have been distorted, and there is no indicative effect. We used PB valuation. Dayou Energy is the coal asset platform for Henan Energy & Chemical Group, and there is plenty of room for future use. At the same time, Henan Energy & Chemical Group is undergoing state-owned enterprise reform, and the potential dividend is huge. Referring to Panjiang shares that have been reformed by our peers, the PB is 2.8 times that. We expect Dayou Energy's net assets per share to be 4.14 yuan in 2015, with 2.5 times PB, and a target price of 10.35 yuan to maintain the purchase rating. Investment risk warning: Coal prices continue to be low, mine commissioning progress is lower than expected, and production is safe.