Events:

1. On October 21, 2015, the company announced that it would terminate its plan to increase its 55% stake in Zhongyuan Natural Gas and instead intend to issue 147 million shares to Fuding Electronic Technology (Jiashan) Co., Ltd. and 26 million shares to Zhengzhou Investment Holdings Co., Ltd. the issue price is 6.36 yuan per share, raising 1.1 billion yuan, of which 800 million yuan is used to repay bank loans and the rest is used to replenish working capital.

Comments:

1. The profits of the gas business and photovoltaic glass business will remain stable, and the loss-making float glass business will be spun off.

At present, the company is mainly engaged in gas and photovoltaic glass, and the loss-making float glass business was spun off in July 2015.

1) in terms of gas, it is mainly engaged in the natural gas transportation business of the West-to-East Henan North Branch Pipeline, and the construction of CNG and LNG projects, the revenue and profit remain relatively stable, with an income of 1.002 billion yuan and a net profit of 44 million yuan in 2014. With the decline of natural gas prices in 2015, the profitability of gas filling stations has declined, and the natural gas business is expected to maintain a net profit of 0.2-30 million yuan in 2015.

2) the company operates ultra-white float glass and deep processing business, and due to the impact of the economic slowdown, the overall overcapacity of the industry, the company's float glass business lost 212 million yuan in 2014. The company announced that it will replace 100% stake in Ancai Solar, a subsidiary of float glass, and part of its claims with the industrial land use rights held by Henan Investment Group located in the company's factory area and used by the company. In July 2015, the 100% equity of the purchased asset Ancai Solar has completed the industrial and commercial registration change, the subsidiaries are no longer included in the scope of the merger, and the profit and loss on the disposal of non-current assets reached 180 million yuan in the third quarter of 2015.

3) the company's photovoltaic glass business has a production capacity of 33 million pieces per year, with an operating income of 797 million yuan and a gross profit margin of 20.5% in 2014. The price of photovoltaic glass dropped in 2015 compared with the same period last year. The company's photovoltaic glass business achieved revenue of 380 million yuan in the first half of the year, and its gross profit margin dropped to 13.5%. Recently, domestic photovoltaic glass enterprises have good orders, rapid inventory digestion and stable prices. According to media reports, China's photovoltaic target for 2020 is expected to be raised to 150GW. Southeast Asia, India and other emerging countries have made great efforts to develop the photovoltaic industry, and it is expected that the cumulative photovoltaic installation in Southeast Asia in 2016 will reach 5GW. Therefore, the future demand for photovoltaic glass can also maintain a steady increase, while the industry survival of the fittest integration is coming to an end, the company's photovoltaic glass business profitability is expected to be stable in the future.

2, the company continues to have mixed reform, transformation expectations, the introduction of Foxconn, Zhengzhou investment holding, mixed reform accelerated.

At present, Henan Investment Group Co., Ltd., the controlling shareholder of Henan SASAC, accounts for 59.1% of the company's equity. According to public reports, Henan Investment Group is one of the first batch of provincial-managed enterprises in Henan Province to develop mixed ownership. The mixed reform of pilot enterprises has been accelerated. Zheng Coal Machinery has been reorganized into Henan Machinery and equipment Investment Group, and Henan Investment Group and Feida Environmental Protection Co., Ltd. have jointly invested in Henan Yuneng Feida Environmental Protection Co., Ltd. Therefore, the company continues to have mixed ownership reform expectations. At the same time, the company's current main business profit growth is slow, the previous announcement of the acquisition of Central Plains Natural Gas, plus natural gas business reflects a strong demand for reform and transformation.

This increase is a major progress in the mixed reform of the company. The company plans to add 146 million shares and 26 million shares to Fuding Electronics and Zhengzhou Investment Holdings respectively. After implementation, the equity proportion of Henan Investment Group will drop to 47%, Fuding Electronics accounts for 17%, and Zhengzhou Investment Holdings accounts for 3%.

The wholly-owned controlling shareholder of Fuding Electronics is Hon Hai Precision (Foxconn), a Taiwanese enterprise specializing in the production of 6C products such as computers, communications, consumer electronics, digital content, automotive components, channels and semiconductor equipment. Zhengzhou Investment Holdings is 100% controlled by Zhengzhou SASAC, manages the state-owned capital income of the invested enterprises, and makes strategic investment, holding and equity participation in local financial and advantageous enterprises, high-tech enterprises, etc. at the same time, it is a local capital operation platform that undertakes the restructuring, restructuring and disposal of state-owned enterprises.

The additional funds raised this time are used to repay loans and raise liquidity, which does not solve the problem of company transformation. We believe that there is still a need for companies to improve their earnings growth through transformation in the future.

3. Foxconn ploughs the Henan market and will invest 28 billion LTPS LCD panel project in Zhengzhou. It is of great significance for the company to introduce it as a war investment.

Foxconn has more than 200 subsidiaries in Asia, the Americas and Europe and has a turnover of US $13.9 billion in 2014. Foxconn has invested in the mainland since 1988 and has invested in factories in the Pearl River Delta, Yangtze River Delta, Bohai Rim and central and western regions.

Foxconn has carried out extensive cooperation with Henan. Zhengzhou is the core area of the cooperation, and 85% of Zhengzhou's exports are strongly driven by Foxconn. The Foxconn Science and Technology Park, which is located in Zhengzhou Airport area, is composed of Zhongmou County Factory, Economic Development Zone Factory and Airport Factory, mainly producing spare parts of electronic products. The Zhengzhou Foxconn airport project currently under construction, with an investment of 19.6 billion yuan, is expected to be completed in 2015.

Following the investment in Shenzhen Shenchao Optoelectronics, Foxconn will invest 28 billion yuan to build its second LTPS (low temperature polysilicon) LCD panel project in Zhengzhou, representing the highest generation of LTPS in China, with trial production expected in 2017, according to the website of the Henan provincial government.

In addition to Zhengzhou, Foxconn also owns Nanyang Foxconn with an annual output of more than 1 million projectors and 300000 sets of LED lamps, with a total investment of 20 billion, annual production of 56 million sets of mobile phone mechanism parts, more than 5000 servo motors, spindles, etc. Jiyuan Foxconn Industrial Park and other projects, cooperation agreements with Puyang and other places have also been signed.

In addition, speaking at Hon Hai's annual shareholders' meeting in Taipei, Mr Gou said the company was considering spinning off Chinese mainland's business over the next three to five years to list on the Shanghai and Shenzhen exchanges.

But due to rising land and labor costs in China, Foxconn, a labour-intensive company, has begun to move some of its factories to lower-cost Southeast Asia and has planned to invest 1 billion dollars in building a production and research base in Indonesia.

We believe that in the early days, the company operated the glass shell business of color picture tubes, and its business experience cooperated with Foxconn. With Foxconn, the company can accelerate its transformation and increase Foxconn's intention to invest in Henan and even China.

4. "increase the holding" rating. Regardless of the impact of non-public offerings for the time being, we expect the company to have a relatively high valuation with a relatively high recent increase in EPS0.13 yuan, 0.02 yuan and 0.03 yuan in 2015-2017. We are optimistic that the introduction of Foxconn and Zhengzhou Investment Holdings is of great significance to the transformation and mixed reform of the company, covering the company for the first time and giving the company an "overweight" rating.

5. Risk hints: systemic risks in the market, uncertainty in non-public offerings, and lower-than-expected progress of mixed reforms.