Main points of investment:
Speed up the cultivation of natural gas business and expand the market in Rushan area of Weihai. Shengli shares signed an agreement with Huachang New Energy and its shareholders to set up a natural gas professional company with high-quality natural gas assets recognized by all parties to operate the natural gas business in Rushan area of Weihai. The company plans to buy 60% of the newly established natural gas professional company for 47.4 million yuan. This cooperation will help to give full play to the advantages of all parties, achieve the goal of win-win development, and speed up the distribution of the company's natural gas market in Jiaodong Peninsula.
Performance commitment and compensation methods. The original shareholders of the natural gas professional company made a performance commitment: the average audited non-net profit from 2016 to 2020 was not less than 8.1 million yuan, including 000 yuan in 2016, 8 million yuan in 2017, 9.5 million yuan in 2018, 11 million yuan in 2019 and 12 million yuan in 2020. The net profit realized in any year during the profit compensation period (2016-2020) shall not be lower than the promised net profit in the same period, otherwise Huachang New Energy shall give the company corresponding cash compensation.
Transfer the equity of Shandong Lihua Sheng Automobile and speed up the withdrawal from traditional industries. In order to develop the clean energy and natural gas industry and speed up the withdrawal from traditional industries, Shengli shares and Shandong Lihuasheng Energy, a wholly-owned subsidiary, will transfer their 100% equity holdings to Yang Hongxing and Yang Zhifeng for a total price of 15.19 million yuan. the equity transfer is expected to contribute about 1.7 million yuan to the company's net profit and exit funds for clean energy and natural gas business development.
Expand the natural gas market in Northeast China. In order to speed up the cultivation of natural gas business and expand the natural gas market in Northeast China, the company signed an agreement with Dalian Yimin Industry and Pulandian Yimin on December 20, 2015. it is planned to jointly develop and operate the natural gas business in Dalian City Pulandian City, Puwan New area and Dalian Zhuanghe City. As of September 12, 2016, the industrial and commercial registration and bank opening procedures of Dalian Shengyi New Energy funded by Dalian Yimin and Pulandian Yimin have been completed, and the company has signed an equity agreement with Dalian Yimin and Pulandian Yimin. After the completion of the equity transfer, the company will hold 51% of Dalian Shengyi New Energy (the maximum price limit of 51% equity is 48.45 million yuan). The industrial and commercial registration and bank account opening procedures for Dalian Yimin New Energy, funded by Dalian Yimin Industry and its shareholders, have been completed, and the company has signed an equity agreement with Dalian Yimin Industrial and its shareholders. Dalian Yimin Industry intends to receive 22.95 million yuan to hold 51% of Dalian Yimin New Energy. The deal will help the company accelerate the development of its natural gas business.
It is proposed to issue shares to purchase natural gas and other urban operating assets, and raise supporting funds. Shengli shares plan to purchase 100% equity of Jingzhou Natural Gas Development Co., Ltd., held by Jingzhou Jinghu Real Estate Development Co., Ltd., Chongqing Xianda Industrial Co., Ltd., and Bazhou Shunda Natural Gas Co., Ltd. hold 49% equity interest in Bazhou Shunda Gas Co., Ltd., and raise supporting funds at the same time. This transaction will help the company to expand the natural gas market and gradually improve the industrial chain.
Profit forecast and investment rating. We expect the EPS of Shengli shares to be 0.17,0.37 and 0.40 yuan respectively from 2016 to 2018. According to the 2017 EPS and 20 times price-to-earnings ratio, we give the company a target price of 7.40 yuan and maintain the "overweight" investment rating.
Risk tips: transformation risk; the progress of natural gas business development is not as expected.
