Net profit increased 18.1% year over year. Volkswagen released its first annual report after listing in Hong Kong. Sales revenue recorded 4.57 billion yuan (same below), down 1.0% year-on-year, in line with our expectations. The pipeline gas supply business accounts for the vast majority of sales revenue. Sales fell 1.9% year-on-year to 4.24 billion yuan. As the NDRC lowered terminal gas sales prices, this was partially offset by the implementation of tiered gas prices and the increase in gas sales volume. The sewage treatment business and infrastructure projects contributed 180 million and 55 million respectively in revenue. The financial services sector, on the other hand, showed strong growth momentum, contributing 91 million dollars in revenue, up 80.5% year over year. Net investment income was recorded at only 110 million yuan, an increase of 54.2% year-on-year, lower than our expectations, but this impact was offset by the high growth rate of profit sharing by affiliated companies. The company's profit share during the year was 50 billion yuan. The company achieved net profit of 550 million yuan in 2016, up 18.1% year on year. Dazhong Public Corporation announced a final dividend of RMB 6 cents per share, with a dividend ratio of 32.4%.
Leverage will be moderately increased for project mergers and acquisitions in 2017. By the end of 2016, the company's debt ratio was only 24.8%, far lower than that of its utility peers. Management intends to increase leverage moderately during the year to further increase return on investment. The company plans to launch mergers and acquisitions of public service project opportunities in the Yangtze River Delta region and Southeast Asia, and plans to raise M&A capital through various financing channels. In terms of M&A targets, the current potential project target will be a city gas project. Management believes that keeping the debt ratio at 55% would be a reasonable and manageable level.
Shenzhen Venture Capital will be a potential performance catalyst for 2017. Over the years, the company has received rich returns through profit sharing through joint ventures. Management emphasized that the company's investment in joint companies is a mature business model. This maturity is based, in particular, on the good performance of the Public Transport Group and Shenzhen Venture Capital. Based on the acceleration of the A-share IPO process, Shenzhen Venture Capital's project investment will be made through listing and exit opportunities, with potential profits. We believe that Shenzhen Venture Capital will be the catalyst for popular public utility's performance in 2017. According to FinTech Group's Private Equity Connect data, 135 companies were A-share bosses in the first quarter of 2017. Of these, 75 were supported by VC/PE institutions, and Shenzhen Venture Capital invested in 7 companies between them, ranking first among VC/PE institutions.
Maintain a “buy” rating. We adjusted our earnings forecast to update the company's fundamentals and lowered our 2017/18 net profit by 9.4%/9.9% to 570 million/630 million respectively. We maintained our target price of HK$4.15 per share, which is equivalent to the predicted price-earnings ratio of 16.9 times in 2017, and maintained a “buy” rating.
