Key points of investment:
The subsidiary Volkswagen Hong Kong increased its holdings of Sutuang Gas by 7.818 million at an average price of HK$2.2 per share. As of March 30, 2017, Volkswagen Hong Kong, a wholly-owned subsidiary of Volkswagen Public Utilities, increased its holdings of Sochuang Gas by 7.818 million shares at an average price of about HK$2.2 per share, totaling approximately HK$17.19,600. After completion, Suchuang Gas held a total of 178 million shares, with a shareholding ratio of 19.75%. It is still the second largest shareholder of Suchuang Gas.
The increase in holdings ensures that the shareholding ratio does not change. On March 10, 2017, Suchuang Gas completed the placement of 40 million new shares under general authorization, with an placement price of HK$2.2 per share, accounting for about 4.43% of the expanded share capital, and a net capital of about HK$86.7 million. Previously, Volkswagen Hong Kong held 171,000 shares of Sochuang Gas, accounting for 19.76%. After this sale, Volkswagen Hong Kong's share dropped to 18.89%. Through this increase in holdings, Volkswagen Hong Kong's shareholding ratio rose again to 19.75%, ranking steadily as the second largest shareholder.
Suchuang Gas - a local gas company with excellent operation. Su Chuang Gas is the main pipeline gas operator in Taicang City, Jiangsu. By the end of 2016, the length of the gas pipeline it was operating had reached 574 kilometers, covering more than 90% of Taicang's natural gas pipeline network. It was listed on the Hong Kong Stock Exchange in March 2015. The company achieved revenue of 741 million yuan in 2016 and net profit of 121 million yuan for its mother. In 2015, Suchuang Gas's gross margin was 25.25%, far higher than the 12.33% gross profit margin for mass public use (gas business) during the same period. In 2016, Suchuang Gas successively acquired 51% of Sichuan Guangyuan Mileage Gas's shares and 80% of Kunshan Anda's shares, expanding its gas business beyond Taicang. Meanwhile, through acquisition and self-construction, the company already owns 5 compressed natural gas filling stations. This increase in holdings is conducive to increasing the overall profitability of public use by the public and expanding the company's gas business in the Yangtze River Delta. At the same time, the company completed the issuance of H shares in December 2016, and 35% of the capital raised will be invested in the pipeline gas supply business.
Participate in top venture capital platforms. Dazhong Public has a 13.93% stake in Shenzhen Venture Capital and 12.82% of the shares in the Chinese Cultural Industry Fund, all of which are top domestic venture capital platforms. At the beginning of 2017, the company invested in the independent investment portfolio of the US dollar fund, the Xinhua Innovation Fund, and high-quality venture capital finance projects reserved abundant resources for the company's high growth in the future. At the same time, the company's four utility sectors of urban pipeline gas, sewage treatment, public infrastructure, and urban transportation contribute to stabilizing cash flow and providing a good safety cushion for performance growth.
Profit forecasts and investment recommendations. The company is expected to achieve net profit of 703 million and 864 million yuan belonging to the parent company in 2017 and 18, and the corresponding EPS is 0.24 and 0.29 yuan/share, respectively. Referring to the valuations of comparable companies, considering the future growth of the company's gas, water and other businesses, as well as the valuation premium of the financial venture capital business, the company was given 35 times PE in 2017, corresponding to the target price of 8.4 yuan/share, and a purchase rating.
Risk warning. (1) As gas prices change, the company's gross margin falls; (2) competition in the water industry intensifies; (3) the financial venture capital business is greatly influenced by the capital market, and earnings fluctuate greatly.