The first batch of pilot projects for the reform of state-owned enterprises that are the most valued in Shanxi. The biggest point of interest: at present, the state-owned enterprise reform pilot enterprises in the coal power sector, such as State Investment Electric Power and Wenshan Electric Power, all have PB valuations of more than three times in 2015, while the company has been restricted by the slow reform of Shanxi state-owned enterprises, and the valuation has not been raised. Since July, the provincial party secretary mentioned the company's state-owned enterprise reform twice and conducted research, and the investment opportunities ignored by the market are likely to be in front of the company. In July 2015, Wang Rulin, secretary of the Shanxi Provincial CPC Committee, said: "Tong Coal and Jinneng Group have deepened the pilot reform and gained experience in promoting it throughout the province." It is required to solve the following problems: 1, to solve the problems left over from the integration of resources, and 2, to solve the problem of the monopoly of coal state-owned assets. Specifically, it includes that the market-oriented mechanism of professional managers has not been established, the main and auxiliary analysis of enterprises, the stripping of social functions and so on. On October 15, 2015, it was pointed out again that Jinneng Group was a pilot reform, and specially went to Jinneng Group to investigate and inspect the situation. We believe that the progress of Shanxi's state-owned assets reform is not necessarily the fastest, but after the introduction of the state-owned enterprise reform plan, Shanxi will also gradually promote, and as a relatively backward operating efficiency of Shanxi enterprises, the company's profits will also have sufficient room for improvement.

Small companies and large groups, the high-quality assets of the group are 5 times higher than those of listed companies. Jinneng Group, the company's major shareholder, owns 100% of Shanxi International Power, while Shanxi International Power holds 60% of Tongbao Energy. In 2014, Jinneng Group achieved 191.4 billion yuan in main business income and 661 million yuan in total profits. It has two subsidiaries: 1. Coal sales Group. In 2014, the coal output was 70.31 million tons, the coal trade volume was 410 million tons, and the net profit was-1.5 billion yuan. 2. Shanxi International Power. In 2014, the installed capacity of rights and interests was 5.54 million kilowatts, the power generation was 12.51 billion kilowatt hours, the electricity sales were 6.84 billion kilowatt hours, the gas sales volume was 920 million cubic meters, and the net profit was 1.5 billion yuan. In 2015, the group is building 7.42 million kilowatts of power generation, 400000 kilowatts of wind power and 70,000 kilowatts of photovoltaic power, and plans to acquire 200000 kilowatts of wind power. Among them, the listed company of Tongbao Energy installed only 1.28 million kilowatts in 2014, with a net profit of 560 million. The Group has made a clear commitment to give priority to supporting the company in power generation project development, capital operation, asset mergers and acquisitions as the final integration platform of thermal power business.

The profit improvement opportunity of electricity reform. The company currently has three main businesses, power generation, power distribution and gas. The profits in the first half of 2015 are 1.15,1.14 and-7 million yuan respectively. Judging from the existing electricity reform plan, it is difficult to liberalize the prices of power generation and electricity sales in the short term due to the problem of cross-subsidy of electricity prices. The company is expected to increase direct purchase of electricity. According to the current average price of direct purchase of electricity in Shanxi, which is lower than the price of 0.05yuan / kWh, the company's EPS is expected to increase by 0.04yuan in 2016.

It is estimated that the company will give the company a target price of 10.65 yuan according to the segment valuation of EPS0.36 yuan, 0.48yuan and 0.52yuan from 2015 to 2017. As the power and gas assets of the parent company are 5 times and 2 times that of the listed company respectively, and dragged down by coal assets, the group funds are also relatively tight at present. Jinneng Group has always been one of the enterprises most valued by the Shanxi Provincial CPC Committee. The provincial party secretary has investigated the company many times, and we think that the company should be valued higher than the industry average. According to the 2015 average PB1.7 of thermal power assets and 2.5 times of power grid assets, we think that the company should be valued higher than the industry average. The PB of thermal power, power grid and gas assets in 2015 is 2.5,3 and 4 times, respectively. The division estimates the value of the company at 11.3 billion yuan, corresponding to a share price of 10.65 yuan.

Risk hint: the progress of state-owned enterprise reform is slower than expected.