Main points of investment:

The company released its 2016 semi-annual report on August 26th. In the first half of 2016, the company realized operating income of 233 million yuan, an increase of 13.59% over the same period last year, and the net profit belonging to shareholders of listed companies was 6.5681 million yuan, down 4.82% from the same period last year. The year-on-year decrease in net profit belonging to shareholders of listed companies is mainly due to the increase in operating costs and management expenses of the new subsidiaries Suneng Natural Gas and Luojiang Natural Gas, and the increase in financial expenses caused by the reduction of deposits and the increase of loans.

Divest the commodity retail business and expand the urban pipeline natural gas business. In June 2016, the company decided to terminate all its commercial retail operations and concentrate on the layout of its natural gas business. An increase of 565 million was set in October 2015 to acquire 88 per cent of Jingneng Natural Gas and Luojiang Natural Gas, and the remaining 12 per cent of Jingneng Natural Gas and Luojiang Natural Gas were acquired with its own capital of 77.2674 million yuan in June 2016. at this point, Suneng Natural Gas and Luojiang Natural Gas have become wholly owned subsidiaries of the company. After the completion of the acquisition, new pipeline gas management rights will be added in Sichuan Deyang High-tech Zone and its vicinity, Wanan Town, Luojiang County, Deyang, and Xingguo Town, Yangxin County, Huangshi City, Wuhan. So as to further expand the company's urban pipeline natural gas business and stabilize the company's market position in the middle reaches of natural gas. Jingneng and Luojiang Company merged one after another in the first half of the year, increasing the company's corresponding operating costs and management expenses. at the same time, the use of funds raised in the current period reduced deposits, increased loans, and increased corresponding financial expenses.

Distribution of distributed natural gas and coalbed methane development to create a complete natural gas industry chain. In June 2016, the subsidiary Chase Ruiheng acquired a 100% stake in Shanghai Huanchuan. Shanghai Huanchuan will provide distributed energy triple supply for Shanghai Jiading data Center, which is a benchmark project for distributed energy in the field of IDC. The successful commissioning of this project will bring more IDC distributed energy project orders to the company, which will go deep into the downstream application field of natural gas. At the same time, in 2015, the company invested 61.7245 million yuan to participate in the initial public offering of Yamei Energy to broaden the upstream gas industry chain and ensure the stability of gas sources through the energy trading platform in the future.

Profit forecast and valuation. It is estimated that the net profit of the company belonging to the parent company is 6291 yuan and 87.53 million yuan in 16-17 years, and the corresponding EPS is 0.18,0.24 yuan respectively. The company's retail property: Hualian Commercial Building property is about 53000 square meters (office buildings, teahouses and hotels are about 20, 000 square meters, unit price is 10, 000 per square meter, commercial floor is about 30, 000 square meters, unit price is 50, 000 per square meter); Hualian company 36000 square meters (corresponding to 14 mu, unit price 15 million / mu), the total value revaluation is about 19.1 billion yuan. It is estimated that the total net profit of the natural gas business in 2017 is about 65.64 million yuan, giving the gas business 30 times PE, corresponding to a market value of 1.969 billion yuan. Distributed natural gas is expected to make a net profit of 20 million yuan in 17 years. Considering the demonstration effect of the cooperation project between the company and Sinnet, this part of the business is valued at 60 times, corresponding to a market capitalization of 1.2 billion. To sum up, the company's 17-year market capitalization is expected to total 5.08 billion, corresponding to the current total share capital of 359 million, the share price is 14.16 yuan. Buy rating.

Risk hint. (1) the divestiture of commodity retail business is not as expected; (2) the performance of Jingneng and Luojiang Natural Gas in 16 and 17 years is not as expected; (3) the construction progress of distributed natural gas project is not as expected.