Investment highlights: State-owned gas listing platform in Shaanxi Province. Shaanxi Natural Gas Co., Ltd. was established in 1995. In August 2008, the company was listed on the Shenzhen Stock Exchange. In the same year, Shaanxi Province decided to implement the “Gasification of Shaanxi” strategic project, and the company became the main implementing unit of the “Gasification of Shaanxi” project. Currently, the company's main business is the planning, construction, operation and management of the long-term natural gas pipeline network in Shaanxi Province, while also expanding downstream gas distribution business such as urban gas. The majority shareholder of the company is Shaanxi Gas Group Co., Ltd., which holds 55.36% of the shares. The actual controller is the Shaanxi Provincial State-owned Assets Administration Commission. The company achieved revenue of 6.790 billion yuan and net profit of 586 million yuan in 2015, with year-on-year increases of 27.58% and 14.43%, respectively. Driven by the gasification strategy of Shaanxi and gas reform, the company's gas sales volume is expected to increase steadily. Gasification is the main force in Shaanxi. Shaanxi Province is rich in oil and gas resources. The company's gas sources are mainly Changqing, CNPC, Sinopec, and Yanchang, supplemented by Hancheng coalbed methane, etc., and the supply is sufficient. At present, the company has built 11 long-distance natural gas pipelines from Jingbian to Xi'an, including the first, second, and third lines, with a total mileage of nearly 3,000 kilometers, an annual gas transmission capacity of 13.5 billion cubic meters, and a gas transmission trunk network covering 11 cities (districts) across the province. Currently, the company's large-scale pipeline network project under construction has basically been completed, and future depreciation is expected to decline year by year. In 2015, the Shaanxi gas long-distance pipeline sold 4.518 billion cubic meters of gas, an increase of 16.02% over the previous year. In recent years, Shaanxi Province has lowered management and transportation fees for non-residents several times. Currently, gas prices are low across the country, and there is limited room for further reductions in the future. The decline in management and transportation costs is expected to affect the company's performance in 2016 and 2017 in the short term, but in the long run, as prices stabilize and downstream demand increases, the company's performance will grow steadily. At the same time, the company's participation in and holding of urban gas companies covers the five prefecture-level cities of Ankang, Hanzhong, Shangluo, Yan'an, and Xianyang. In addition, Weinan and Tongchuan city gas assets are owned by the parent company Gas Group. In order to resolve competition among peers, future expectations are injected into listed companies. In 2015, Shaanxi Natural Gas's urban gas sales volume was 230 million cubic meters, an increase of 18.12% over the previous year. A fixed increase helps improve gas transmission capacity. In December 2016, the company issued a plan for the non-public offering of A shares. It plans to issue no more than 164 million shares to no more than ten institutional investors and natural persons, raise no more than 1.5 billion yuan in capital, and raise no more than 1.5 billion yuan in capital. The issue price is not less than 9.12 yuan/share, and the lockdown period is one year. The capital is intended to be used for the Han'an Line and Zhonggui Line, Shangluo to Shangnan, Meixian to Longxian, Shangluo to Luonan, and Ankang to Xunyang natural gas pipeline projects and supplementary working capital. After the completion of the above projects, the company's long-distance pipeline will increase from 3,000 kilometers to 3,488 kilometers, and the annual gas transmission capacity will increase from 13.5 billion cubic meters to 14.5 billion cubic meters, further advancing the gasification strategy of Shaanxi and increasing the company's market share and profitability. Profit forecasting and valuation. Regardless of non-public offerings, the company is expected to achieve net profits of 451 million yuan and 534 million yuan attributable to the parent company in 2017-2018, corresponding to EPS of 0.41 and 0.48 yuan/share, respectively. Considering the dilution of non-public offerings, the corresponding EPS are 0.35 and 0.42 yuan/share, respectively. Referring to comparable company valuations, the company was given 35 times PE in 2017, corresponding to the target price of 12.25 yuan, and given an increase in holdings rating. Risk warning. (1) The progress of projects under construction, such as the company's pipelines, is below expectations; (2) the price of pipelines and transportation fees has fluctuated; and (3) the degree of improvement is lower than expected.