Events:
The company announced in January 15 that it intends to contribute no more than US $38.5 million, accounting for 35% of the total capital contribution, and jointly contribute to the acquisition of Galaz and company LLP100% 's rights and interests with Chuangyue Group and Ronghui Xiangjiang. At the same time, the company announced that it plans to set up a holding subsidiary "Afghanistan Zhundong Oil and Gas drilling Engineering Co., Ltd." to jointly develop the oil and gas business market in Afghanistan. After the resumption of trading, the stock price has plummeted continuously, and we believe that there is a big background of continuous decline in international oil prices, but there is also the possibility of insufficient understanding of this merger and acquisition.
Comments:
Galaz's assets are fairly priced. A lot of evidence shows that the reserves of Galaz's NW-konys block are conservative, the price is fair, the output of single well and the quality of crude oil are excellent. Although the current price of crude oil has softened substantially, in terms of asset quality, M & A projects can withstand scrutiny and inspection.
Afghan companies-the market for Afghan project leaders may be underestimated. The crude oil resources of Afghanistan are distributed in the Amu River region in the northwest, far away from the traditional sphere of influence of the Taliban. The company's entry into Afghanistan can not only resolve the idle capacity in Xinjiang, but also give play to the company's experience in stabilizing and increasing production. Considering that such projects are livelihood projects, profits should be guaranteed and quite rich. Considering the background of the Albanian partner, there is room for further operation.
The eight-year transformation of the company has been the most encouraging step so far. The company has been planning business transformation for 8 years, and has entered into coalbed methane, hydraulic coal mining and other fields in Xinjiang, but the effect is not satisfactory. In recent years, the company has seized the opportunity of the Belt and Road Initiative to enter Central Asia. Judging from the block quality of this merger, we believe that this is the most solid step in the process of transformation. The company's development strategy of "an integrated industrial company integrating oil and gas technical services, development, product production and sales" should be seen as a front line.
The "prudent recommendation-A" investment rating is given for the first time. We estimate that the company's earnings per share from 2014 to 2016 are 0.12,0.18 and 0.19 yuan respectively. Taking into account the possible breakthrough of NW-konys147 square kilometers and the new development of the project in Afghanistan, we give the company a target price of 16 yuan, corresponding to a total market capitalization of 4 billion yuan, and for the first time give a "prudent recommendation-A" investment rating.
Risk hint: slow progress in Central Asia