Event: upgraded from Sun Company of Shansi Iron and Steel Group to subsidiary company

Luyin Investment announced on the evening of January 6 that controlling shareholder Laigang Group intends to transfer 20.31% of the company's equity agreement to the actual controller of the company, Shan Steel Group, which will no longer hold shares in the company, while Shan Steel Group will hold 20.31% of the total share capital of the company. Laigang Group is a wholly-owned second-class enterprise of Shanxi Iron and Steel Group. After this equity transfer, the largest shareholder of the company will change, but the actual controller has not changed. The investment of Luyin was upgraded from Sun Company of Shanshan Iron and Steel Group to a subsidiary of Shanshan Iron and Steel Group.

Comments: enhances the probability of injecting large-scale, high-level assets in the future.

Under the background of the acceleration of the reform of state-owned enterprises in Shandong Province, the recent capital operation of Shansi Iron and Steel Group and other state-owned enterprise reform expectations are ready to move. In recent years, the main steel industry invested by Luyin is generally good under the background of the industry downturn, and we believe that Luyin investment is the priority shell asset of Shandong Iron and Steel Group. And Shanshan Iron and Steel Group has a large number of high-quality assets, especially financial assets, including Zhongtai Securities, Laishang Bank and Shanxi Iron and Steel Finance Company. It is worth mentioning that Sino-Thai Securities has been criticized by the CSRC, IPO is likely to be postponed or even blocked, the possibility of backdoor has increased in the future.

After the change of the investment equity of Luyin, Sun Company of Shandong Iron and Steel Group has been upgraded to a subsidiary. If the Shandong Iron and Steel Group carries on its capital operation, it can be operated directly by the Laiwu Iron and Steel Group without going through Laiwu Iron and Steel Group. It is more conducive for the company to inject large-scale and high-level assets. We are more optimistic about the expectation of the reform of the company's state-owned enterprises.

Seriously undervalued, maintain buy rating

Regardless of capital operation, the company's EPS from 2016 to 2018 is expected to be 0.15,0.15,0.16 yuan respectively. The latest market value of Luyin investment is 5.801 billion yuan, PB is 3.9 times, after deducting the market value of Wanrun shares, the market value is only 4.05 billion yuan, the value is seriously undervalued. With reference to 5 times PB valuation, give a 6-month target price of 13.01yuan. We continue to strongly recommend and maintain our "buy" rating.

Risk Tips:

(1) the risk that the reform, process and plan of state-owned enterprises do not meet expectations; (2) the risk of poor management of the company; (3) the risk of market volatility.