Although Zhangze Electric Power is still a “*ST”, the fundamentals have changed drastically, so investors are advised to focus on it. We believe that after the actual controller of the company was changed to the Shanxi Provincial State-owned Assets Administration Commission, it has become an important platform for the development of “coal-power joint ventures” in Shanxi Province. There is more room for future development, and it is expected to become a large market capitalization company. In 2013, Zhangze Electric Power will have major benefits in the following areas: (1) the controlling interest has been changed, management relationships have been streamlined, and development space has been opened; (2) major asset restructuring has been approved, and high-quality assets will soon be injected. While expanding in scale, profitability has increased dramatically; (3) with the support of the new controlling shareholder Tongmei Group, the profitability of the original power plant will definitely improve drastically; (4) with the strong support of the Shanxi provincial government, turning a loss into a profit in 2012 is a foregone conclusion, and “removing the cap” is only a matter of time. 1. Under the two-pronged approach of equity transfer and targeted issuance, the actual controller was changed to the Shanxi Provincial State-owned Assets Administration Commission. On January 5, 2013, the company issued a notice that China Power Investment Group and Shanxi International Electric Power respectively transferred 185 million shares of the company and 11.413 million shares held by the company to the Shanxi Provincial State-owned Assets Administration Commission free of charge, and the transfer registration procedures have been completed. Meanwhile, major asset restructuring matters involving the company's issuance of 680 million shares to Tongmei Group to purchase related assets and the non-public offering of no more than 250 million new shares to raise supporting capital have been approved by the Securities Regulatory Commission. According to an announcement issued by the company on September 12, 2012, the Shanxi Provincial State-owned Assets Administration Commission will entrust full management of the 299.13 million shares transferred to the Shanxi Provincial State-owned Assets Administration Commission free of charge to Tongmei Group, and will inject Tongmei Group into Tongmei Group by increasing capital within one year. Thus, after the equity transfer and additional issuance are completed, the total share capital of Zhangze Electric Power will be changed to about 2.25 billion shares, Tongmei Group will hold 980 million shares, accounting for about 43.6% of the total share capital, making it the largest shareholder of Zhangze Electric Power, and the Shanxi Provincial State-owned Assets Administration Commission will become the actual controller of Zhangze Electric Power. We believe that if the Shanxi Provincial State-owned Assets Administration Commission becomes the actual controller of the company, the company's management will be smoother, and there will be more room for future development. The company continued to experience huge losses in 2008, 2010, and 2011, leading to being “*ST”, mainly because coal prices in Shanxi Province rose sharply, electricity price increases lagged behind, and China Power Investment Group, the company's original majority shareholder, was unable to provide effective support. After the actual controller was changed, the company has become a “brotherly relationship” with Shanxi coal companies. It can receive more effective support from the controlling shareholder Tongmei Group and other coal companies in Shanxi Province, and the company's positioning will also change fundamentally. 2. Targeted additional issuance and acquisition of high-quality assets, doubling in scale and greatly improving profitability, on November 30, 2012, the company issued an announcement: “The company issued shares to purchase assets for major asset restructuring and raising supporting capital and related transactions was reviewed and approved unconditionally by the China Securities Regulatory Commission at the 32nd Working Meeting of Listed Companies in 2012.” On January 4, 2013, the company issued an announcement: On December 31, 2012, the company received the “Approval of Shanxi Zhangze Electric Power Co., Ltd. to issue shares to Datong Coal Mine Group Co., Ltd. to purchase assets and raise supporting capital” from the China Securities Regulatory Commission on December 31, 2012. The assets to be injected this time are four thermal power plants under Tongmei Group. After the acquisition is completed, the company's total installed capacity reached 6.65 million kilowatts, doubling the installed capacity. These power plants are located in Kengkou. They have strong coal security capabilities, high utilization hours, and outstanding profitability, which will greatly increase the company's profit level. After doubling the size of the company with the support of the Shanxi Provincial State-owned Assets Administration Commission and Tongmei Group, there is still huge room for future development. Considering the company's current power projects under construction, awaiting construction, and having obtained “roadblocks,” it is estimated that by the end of the “12th Five-Year Plan,” the company's total installed capacity will reach 12 to 15 million kilowatts, and the installed capacity will double again, accounting for 1/3 to 1/4 of the installed capacity of thermal power in Shanxi, achieving leapfrog development. 3. Major shareholders' support. The profit of the original power plant can be expected to increase significantly. According to the “Report on Major Asset Restructuring and Raising Supporting Funds and Related Transactions by Issuing Shares to Purchase Assets (Draft)” issued by the company on July 27, 2012, the company expects total profit of the assets to be acquired in 2013 to be 7.2 billion yuan, with attributable net profit of 4.2 billion yuan. After the acquisition was completed, all assets were attributed to exam preparation profits for total profit of 440 million yuan, and net profit attributable to 160 million yuan. According to this estimate, in the exam preparation profit forecast, the company assumes that the total profit from the original assets in 2013 was a loss of 280 million yuan, and the imputed net profit was a loss of 260 million yuan. We judge that after the restructuring is completed, the company is expected to receive preferential coal prices from the Shanxi Coal Company. Since the company's original installed capacity is comparable to the scale of the purchased installed capacity, according to the same profitability estimates, the net profit attributable to the company's original assets will also be around 4.2 million yuan, rather than a loss of 260 million yuan. Thus, after the company's restructuring is completed, the net profit in 2013 is expected to reach 840 million yuan. 4. Successfully turning a loss into a profit. “Removing the cap” indicates that since the third quarter of 2012, the company has obtained a large amount of investment income and financial subsidies by selling inefficient assets and seeking government support, helping the company successfully turn losses into profits in 2012. The relevant investment income and financial subsidies are shown in Table 2. We judge that since coal prices across the country have fallen sharply in 2012, especially since the fourth quarter of 2012, coal prices in Kengkou, Shanxi have dropped significantly compared to the first half of the year, and the company's main power generation business has already achieved profit in the second half of the year. However, losses in the first half of the year can be fully covered by subsidies and equity investment income. Therefore, it is inevitable that the company will be able to achieve profit for the full year of 2012, and “cap removal” has become inevitable. 5. Revitalize Nirvana and build a high-quality enterprise integrating coal and electricity. According to the “12th Five-Year Plan” development plan of Shanxi Province, the Shanxi provincial government proposed that to achieve transformation and development and leapfrog development, one important aspect is to make full use of the advantages of coal resources, increase the proportion of local coal conversion, expand the scale of installed capacity, and further raise the level of transmission of electricity to the country. It not only promotes innovation and development of the energy base in Shanxi, but also enhances its ability to provide energy services for national construction, so as to achieve transformation and development and leapfrog development. During the “12th Five-Year Plan” period, the Shanxi provincial government plans to further increase the construction of power points and power grids, and will further vigorously implement the energy development policy of “combining coal transportation and transmission, transmission first”. While continuing to strengthen the construction of coal bases, it will increase the construction of large-scale kengkou power plants and power sources such as coal gangue and washing coal, so that the installed capacity of the three major coal bases in Jinbei, Jinzhong, and Jindong reaches more than 50% of the province's total installed capacity, making new contributions to the country's energy supply and national energy security. The company's major asset restructuring is a demonstration project for the integration of coal and electricity enterprises in Shanxi, with the active support of the Energy Administration of the National Development and Reform Commission, to achieve joint restructuring of coal and power enterprises in Shanxi and create a demonstration project for the integration of coal and electricity in Shanxi. After this restructuring is completed, Tongmei Group, with the support of the Shanxi provincial government, will make full use of its resource advantages and strive to transform Zhangze Electric Power into a high-quality enterprise integrating coal and electricity. 6. Optimistic about the company's long-term development. According to our forecast in the third part of this article, if the company's transformation is successfully completed, net profit in 2013 is expected to reach 840 million yuan (far exceeding the profit forecast of 160 million yuan for exam preparation), corresponding to earnings of 0.35 to 0.4 yuan per share after the increase. According to about 15 times PE, the target price is 5 to 6 yuan. We are optimistic about the company's long-term development, and believe that the company is expected to become a leading enterprise among local power companies in the future. Over time, it can grow into a large market capitalization company, raise its rating to “highly recommended,” and recommend buying and holding it for a long time. 7. Risks suggest that demand for electricity is sluggish, coal prices have rebounded sharply, and there is a risk that small thermal power units will shut down.