China report stable performance: in the first half of 2016, the company achieved operating income of 233 million yuan, an increase of 13.59% over the same period last year; net profit of 6.57 million yuan, down 4.82% from the same period last year; and net profit of 7.88 million yuan, up 15.64% over the same period last year, down 12% from the same period last year.
Performance analysis: in the first half of the year, the company's main gas business performance is stable. On May 31, 2016, the company merged Deyang Jingneng and Luojiang Natural Gas Co., Ltd. under different control. The net profit of the two companies in June was 3.0725 million yuan, accounting for 46.78% of the company's net profit in the reporting period. In the first half of the year, the company's main business changed from "urban pipeline gas and retail business" to "urban pipeline gas". Chengdu Hualian Commercial Building, a subsidiary, signed the "Chengdu Hualian East Ring Plaza Leasing contract" with Chengdu Yilinuko Trading Co., Ltd., and the company divested its commercial retail business, and the compensation expenditure incurred during the period was 1.8 million yuan.
The first natural gas distributed energy project landed: on June 8, the company's board of directors passed the "bill on the acquisition of distributed energy projects by the company's new energy subsidiary". The subsidiary Chase Ruiheng will acquire a 100% stake in Shanghai Huanchuan. Shanghai Huanchuan is the main investor and operator of the distributed energy project for Sinnet Shanghai Jiading IDC, which is expected to be put into operation in early 2017. The landing of the first natural gas distributed energy project lays a solid foundation for the company's further expansion in this field.
To participate in Zhuhai Jinshi, enter the LNG distribution business: Jinshi Petrochemical main LNG distribution and distribution, oil field services imported equipment regional agent. The company's LNG distribution terminals are mainly gas filling stations, industrial customers and urban pipe networks. In 2015, Jinshi Petrochemical achieved revenue of 374 million yuan and net profit of 7.64 million yuan. After participating in the shares, the company will hold 48 per cent of Jinshi Petrochemical, which will quickly enter the field of LNG distribution through the participation of Jinshi Petrochemical.
Investment suggestion: we estimate that the EPS of the company from 2016 to 2018 is 0.07,0.12,0.27 yuan, and the corresponding PE is 169x, 98x, 46x. Although the company is difficult to reflect the advantages in valuation, but the company performance improvement trend is obvious, the market value is small, the future is more important, give buy-A rating, 6-month target price 15 yuan.
Risk hint: the downstream natural gas market is not as expected, and the extension is not as expected.