Main points of investment:
China Petroleum & Chemical Corp's sales company. Taishan Oil is a sales company under China Petroleum & Chemical Corp, mainly engaged in wholesale, retail and automotive natural gas business. It is the largest distributor of oil products and automotive natural gas in Tai'an City, Shandong Province, with a number of gas stations. In 2015, the company realized a total of 489000 tons of refined oil and 3.04 million cubic meters of natural gas, with an operating income of 2.94 billion yuan and a net profit of 4 million yuan.
The company's debt ratio is low and its cash flow is relatively stable. As of the third quarter of 2016, the company's asset-liability ratio was 12.79%, 2.31 percentage points lower than the reported asset-liability ratio, and the company's debt ratio was low. On the other hand, the net cash flow generated by the company's operating activities from 2011 to 2015 was 0.50,1.31,1.68,0.14 and 45 million yuan respectively, compared with 49 million yuan in the first three quarters of 2016.
China Petroleum & Chemical Corp pushed forward the mixed reform. China Petroleum & Chemical Corp announced in August that it planned to sell a 50 per cent stake in its Sichuan-East Gas Pipeline Company. Recently, China Life Insurance Company Limited and Guotou Communications plan to subscribe for 43.86% and 6.14% of the shares in the natural gas pipeline company with cash of 20 billion yuan and 2.8 billion yuan respectively. After the equity transfer is completed, China Petroleum & Chemical remains the largest shareholder of the gas pipeline company, with a 50 per cent stake. The introduction of social capital into the pipeline company shows that the mixed reform of the company is being further promoted. Under the background of China Petroleum & Chemical Corp's mixed reform, the reform and reorganization of Taishan Oil is worth looking forward to.
Profit forecast and investment rating. We estimate that the EPS of Taishan Oil from 2016 to 2018 is 0.01,0.01,0.01 yuan respectively. At present, the company's BPS (MRQ) is 1.90 yuan. According to the BPS and 7 times PB, the company is given a target price of 13.30 yuan and an "overweight" investment rating for the first time.
Risk tips: falling international crude oil prices, lower-than-expected profits of petrochemical products, etc.