Main points of investment:

The company's 2016 annual report disclosed. In 2016, the company achieved operating income of 2.471 billion yuan, down 3.96% from the same period last year, and its net profit was 191 million yuan, down 23.00% from the same period last year. Fully diluted earnings per share is 0.39 yuan, and the dividend plan is 1 yuan in cash for every 10 shares (including tax).

Revenue and profit decreased compared with the same period last year, and the expense rate increased during the period. In 2016, the company achieved operating income of 2.471 billion yuan, down 3.96% from the same period last year. The main reason for the decline in revenue from the same period last year is that the natural gas distribution business, which accounts for the largest proportion of revenue, decreased by 20.10%. In addition, the company's other major businesses grew year-on-year, including LPG business revenue up 221.29% year-on-year. Revenue from engineering and installation business increased by 18.02%, and revenue from environmental protection business increased by 9.20% compared with the same period last year. The company's comprehensive gross profit margin in 2016 was 33.33%, up 1.44% from the same period last year. The main reason is: the company's gross profit accounted for the largest proportion of business engineering installation business (2016 gross profit accounted for 56.08%) revenue increased by 18.02%, gross profit margin increased by 0.29%. In 2016, the company's sales expense rate, management expense rate and financial expense rate increased by 0.38%, 2.28% and 1.23% respectively. The sharp increase in the rate of management expense is mainly due to the expansion of the company's acquisition scale in 2016; the loss of asset impairment increased by 164.67% over the same period last year, mainly due to the increase in the loss of bad debts of the company. The company's net non-operating income in 2016 was 24.57 million yuan (including 23.05 million yuan in government subsidies), an increase of 58.54 percent over the same period last year, mainly due to a significant increase in government subsidies compared with 2015.

The focus of the company: the layout of the gas industry chain is perfect, epitaxial mergers and acquisitions open up the market, and the field of atmospheric governance is increased. The layout of the company's gas industry chain is perfect, and the business structure of the integration of upstream, middle and downstream has been gradually formed. the strategic layout of the "regional plate trunk line" urban gas market has been quite effective. Extension mergers and acquisitions accelerated, 16 years successively acquired Leiyang State Reserve (contributed 115.5 million, acquired 100% equity) Suzhou Tianhong Gas (contributed 125 million, acquired 80% equity, promised 17-18 years net profit of not less than 16 million and 21 million), Borey gas supply (contributed 110.5 million, obtained 67% equity, promised 17-18 years net profit of not less than 31 million and 0.31 million) and other company equity. Go deep into Beijing, Tianjin, Hebei, Yangtze River Delta and other markets. Increase the atmospheric governance business, contribute 430 million to complete the remaining 49% equity acquisition of the holding subsidiary Zhengshi Tongchuang (promised 17 years net profit of not less than 100 million), Zhengshi Tongchuang becomes a wholly-owned subsidiary of the company. Zhengshi Tongchuang has worked closely with the Chinese Academy of Sciences and has undertaken a number of national 863 key projects. In the future, the business will expand in the direction of higher technology content, and the company is actively promoting Zhengshitong Innovation third Board listing.

Profit forecast and valuation: from 2017 to 2019, the company is expected to achieve a net profit of 2.45,2.83 and 320 million yuan, corresponding to an EPS of 0.50,0.58,0.66 yuan respectively. With reference to the valuation of the comparable company and the future development of the company, the company is given 35 times PE in 2017, corresponding to the target price of 17.50 yuan, maintaining the buy rating.

Risk hints: (1) weak integration of mergers and acquisitions; (2) weak market expansion of gas business.