Main points of investment:
Divest the commodity retail business and concentrate the natural gas business. The company, formerly known as Chengdu Hualian, which was listed in 1996, changed its name to "Datong Gas" after injecting gas assets in 2003. In 2015, the company's revenue and attributable net profit were 4.21 yuan and 14 million yuan respectively, an increase of-4.86% and-17.91% over the same period last year. It mainly stems from the rise of e-commerce, which puts pressure on the company's traditional main commodity retail business. In recent years, the company's commercial retail business income and gross profit margin continue to decline, while the urban pipeline gas business gross profit margin is high and maintained a steady growth. In June 2016, the company decided to stop all its commercial retail operations and concentrate on the layout of its natural gas business. By managing commercial assets through external leasing and entrusting other parties to operate, the company can use the profits and cash flow generated by commercial asset management to support the development of energy business.
Acquire Jingneng and Luojiang to expand urban pipeline natural gas business. The company is scheduled to increase by 565 million in October 2015 to acquire 88 per cent of Jingneng Natural Gas and Luojiang Natural Gas, and in June 2016, it used its own capital of 77.2674 million yuan to acquire the remaining 12 per cent of the two companies held by the controlling shareholder Chase Group, making Suneng Natural Gas and Luojiang Natural Gas wholly-owned subsidiaries of the company. After the completion of this acquisition, the company will add pipeline gas management rights in and around Sichuan Deyang High-tech Zone, Wanan Town, Luojiang County, Deyang City, and Xingguo Town, Yangxin County, Huangshi City, Wuhan. Coupled with the original pipeline gas management rights of Shangrao Gas and Dalian Gas, the company will further consolidate the company's market position in the middle reaches of natural gas; layout distributed natural gas and coalbed methane development to create a complete natural gas industry chain. In June 2016, the company's holding subsidiary, Chase Ruiheng, acquired a 100% stake in Shanghai Huanchuan. Shanghai Huanchuan is an investment and operation company specially set up to implement the "Sinnet" Shanghai Jiading data Center distributed energy project, which will provide the data center with distributed energy supply of cold, heat and electricity. The project is expected to be put into operation by the end of 2016 and is a benchmark project for distributed energy in the field of IDC. In the future, the successful construction and operation of the project will lay the foundation for the company to enter the downstream distributed natural gas field. At the same time, the company invested 61.7245 million yuan to participate in the initial public offering of Yamei Energy on the Hong Kong Stock Exchange in 2015. Yamei Energy is mainly engaged in the exploration, development, production and sales of coalbed methane. The company's equity participation will help it enter the upper reaches of natural gas and may ensure the stability of gas sources through energy trading platforms in the future.
Profit forecast and valuation. It is estimated that in 16-17 years, the net profit of the company belonging to the parent company is 6291 yuan and 87.53 million yuan, and the corresponding EPS is 0.18,0.24 yuan respectively. The total revaluation of the company's retail business is about 1.91 billion yuan; it is estimated that the total net profit of the natural gas business in 2017 is about 65.64 million yuan, giving the gas business 30 times PE, corresponding to a market value of 1.969 billion yuan; and distributed natural gas is expected to make a net profit of 20 million in 17 years, giving this part of the business a valuation of 60 times, corresponding to a market capitalization of 1.2 billion. To sum up, the company's 17-year market capitalization is expected to total 5.08 billion, corresponding to the current total share capital of 359 million, the share price is 14.16 yuan. Buy rating.
Risk hint. (1) the divestiture of the commodity retail business is not as expected; (2) the performance of Jingneng and Luojiang Natural Gas in 16 and 17 years is not as expected; (3) the construction progress or late operation effect of the distributed natural gas project is not as expected, which affects the company's expansion in this field.