Brief comment

A big increase in performance in 2016

The company issued a pre-performance announcement, due to the company's leading product PVC, caustic soda prices rose in the second half of the year compared with the same period last year, and the investment income of the participating companies increased year-on-year, the company expects the return net profit to increase by 70% 100% year-on-year to 14.28-1.68 billion yuan.

"steady expansion + M & A" to build the industrial chain of energy and chemical circular economy

The company is the leading enterprise in chlor-alkali chemical industry in Inner Mongolia, relying on the integrated circular economy industrial chain of "coal-electricity-chlor-alkali chemical industry" and "coal-electricity-characteristic metallurgy", realizing the efficient transformation of resources and energy in place. Junzheng Group has a production capacity of 700000 tons / year for PVC products, 480000 tons / year for caustic soda products and 300000 tons / year for ferrosilicon products. Through detailed management, tapping potential and increasing efficiency, the company's cost continues to fall. while the chlor-alkali industry remains in the doldrums, the company's main business gross profit margin has always been at the industry-leading level, with PVC gross profit margin of about 30% in the first half of 2016, far exceeding the industry average. According to the data of the company's annual shareholders' meeting in 2015, the company clearly put forward the industrial development strategy of "steady expansion + M & A". On the basis of continuing to consolidate and upgrade the main industry, we are actively looking for opportunities for mergers and acquisitions in the industry. strive to build into the "most competitive energy and chemical circular economy industry chain" group company.

In 2016, the company and Shanghai chlor-alkali reached a comprehensive cooperation in the field of special PVC resins. Through the establishment of a joint venture company, relying on Shanghai chlor-alkali brand, special resin technology, talents, R & D equipment advantages and Junzheng Group's production equipment and resource advantages, the company plans to jointly build an annual output of 200000 tons of paste polyvinyl chloride (E-PVC) project and carry out cooperation in the field of technology development. The two sides have started the first phase of cooperation in the construction of 100000 tons of paste polyvinyl chloride (E-PVC) project. In the future, the company plans to build a variety of products such as chlorinated PVC resin, copolymerized PVC resin and medical PVC resin, which will become an important manufacturer of special PVC resin and special PVC resin in the industry and form a new profit growth point of the company.

"Innovation + Internet" to improve innovative financial industry

The company has invested in insurance, funds, banks and securities firms in the financial sector, and actively tried to take the Internet as the platform, rely on scientific and technological innovation to lead industrial upgrading, and further enhance the core competitiveness and anti-risk ability of enterprises. The company currently holds 15.30% of Huatai Insurance, and the company will transfer 6.97% of Huatai Insurance for the second time. Upon completion of the transaction approval, the company will hold 22.27% of the equity, making it the largest shareholder of Huatai Insurance. Huatai Insurance is mainly engaged in the R & D and sales of property insurance, life insurance and asset management products. With the rapid growth of Huatai Insurance's strategic main channel business and the continuous optimization of business structure, the investment in Huatai Insurance has increased significantly. Huatai Insurance premium income is expected to further increase in 2017. Junzheng Group also holds a 15.6% stake in Tianhong Fund, making it the third largest shareholder in Tianhong Fund. In addition, the company also holds 3.99% of Wuhai Bank and 0.83% of Guodu Securities. The asset scale and proportion of assets in the corporate financial sector have increased significantly. In the future, with the financial development strategy of "innovation + Internet", we will actively give full play to the advantages of investment in the financial field and improve the layout in the financial field.

Maintain the "overweight" rating.

The company will continue to adhere to the development direction of both internal growth and extension development, centering on the industry-finance combination strategy of "industry as the wheel and finance as the wing". Strive to build into a "most competitive energy and chemical circular economy industrial chain" and "innovative financial industry" two-wheel drive of China's first-class group company. At present, the company's asset-liability ratio is about 25%, plus the annual cash flow (net profit + depreciation) is about 2.5 billion yuan, the company has strong investment ability. We believe that the company will benefit from the general trend of increasing market share in the chlor-alkali industry and blaze a new path in the integration of industry and finance. According to the current situation, we estimate that the EPS of the company from 2016 to 2018 is 0.18,0.21,0.26 yuan per share respectively, and the corresponding PE is 24,21,17 respectively. Maintain the "overweight" rating.