Incident: On the evening of April 7, 2014, Baoli Asphalt announced that it will acquire 100% of the shares of Tongjiao Environmental Protection in cash and by issuing shares. Together, Environmental Protection has a valuation of 325 million yuan, of which 105 million in cash will be paid by raising supporting funds; the remaining 220 million will be acquired in the form of issuing shares. At a price of 7.43 yuan/share, 29.61 million shares will be issued to both environmental shareholders Zhao Haihao and Liu Ling. At the same time, the company will provide supporting financing to no more than 10 other specific investors, with a financing amount of 105 million yuan to pay the cash portion of the transaction price. The shortfall will be covered by the company's own capital. Expand into the field of environmental protection and enhance profitability. Together, Environmental Protection is mainly engaged in technology research and development, general engineering contracting, and operation in the fields of air pollution control (flue gas dedusting, desulfurization, and demarketing), high-frequency high-voltage power supplies, etc., in the fields of energy saving and emission reduction in the fields of iron and steel, electric power, etc. Taking YTW wet method integrated flue gas treatment technology as an advantage, the company has undertaken more than 30 desulfurization and denitrification engineering design, contract, operation and electric dust removal efficiency improvement projects since its establishment. Currently, the customer structure is mainly small and medium-sized steel mills, including Xingcheng Special Steel, Chongqing Steel, Jiujiang Pinggang, and Nanjing Iron and Steel. In addition, Panyuan Energy, a subsidiary of Together with Environmental Protection, involves contract energy management business. Together with Environmental Protection, the net profit for 13 years of exam preparation was 22.99 million, and at the same time, it promised that the net profit for 14-16 would not be less than 30 million, 35 million, and 40 million. According to a valuation calculation of 325 million yuan, the purchase price is equivalent to 10.8 of the net profit in 2014. Compared with similar acquisitions of environmentally listed companies, the consideration is basically reasonable. Based on exam preparation performance, after the acquisition, the EPS for 14-16 will increase by 0.05, 0.06, and 0.07 yuan, accounting for 28%, 33%, and 38% of the EPS in '13. Currently, the company's main business is the production and sale of modified asphalt, and the downstream is high-grade highways. As highway network construction becomes more mature, overall growth is slowing, with the exception of the western region. This acquisition will help the company transform from a traditional cycle industry to an energy saving and environmental protection industry and enhance the company's overall scale and profitability. Other points of interest: Invest in petroleum asphalt and expand upstream. The company is actively seeking transformation. In addition to entering the field of environmental protection this time, it has previously invested in the establishment of Xinjiang Baoli Petrochemical Co., Ltd., and will invest in the construction of a “annual processing of 2 million tons of heavy crude oil to produce 1 million tons of heavy crude oil and 1 million tons of heavy duty asphalt production”. Once approved, it is expected that the company's profitability will be greatly enhanced. We will continue to track the progress of the company's Xinjiang heavy asphalt project. Profit forecast and investment advice: As there is still uncertainty about this acquisition, we will not include exam preparation performance in the company's profit forecast for the time being, and have slightly revised the 14-15 performance according to the company's 13-year performance report. The estimated revenue for 2014-2015 is 235 million and 442 million; net profit is 111 million and 221 million, equivalent to EPS of 0.22 yuan and 0.43 yuan, respectively, an increase of 15% and 100% over the previous year, with a valuation of 18-19 times the company's 15EPS, target price 7.74-8.17, maintaining an “increase in retention” rating. Risks: Accounts receivable cannot be collected in a timely manner; demand for transportation infrastructure shrinks due to the macroeconomic downturn; execution of orders and projects falls short of expectations; raw material costs rise due to rising crude oil prices; acquisitions fall short of expectations.