Investment logic

After the completion of the overhaul and renovation, the main business of the highway hit bottom and rebounded: in recent years, the decline in profits is mainly due to the overhaul and renovation of the Tan-Shan Expressway, with a cumulative investment of about 2.18 billion yuan, resulting in a reduction in traffic flow, a big increase in costs, and a surge in financial expenses. Both the income and gross profit of Tanshan Expressway account for about 60% of the main business. With the completion of the overhaul and renovation, the toll income of the main industry in 2014 increased by 25% compared with the same period last year, and the gross profit increased by 20% compared with the same period last year. The opening of the "broken road" of Xu-Huai Expressway will increase the scale of traffic flow, and we judge that the main industry has hit bottom and rebounded.

The "one body and three wings" strategy, the sudden rise of environmental protection business: the company is actively exploring diversification, taking highways as the main body, and creating a "three-wing" platform outside the main business, that is, industrial investment platform, financial platform and wealth management platform. Revenue doubled in 2014, mainly from the acquisition of Shanghai Wogu Metal Materials Co., Ltd., which generated a lot of revenue from spot trading of commodities, but its gross profit margin was estimated to be only 7%. (1) in terms of financial platform, it is proposed to spend 140 million yuan to subscribe for 20% of Huaihua Agricultural Commercial Bank and 60 million yuan to subscribe for 20% equity of Chinese Agricultural Commercial Bank. It is expected to bring about 20 million of the annual investment income to the company in the future. (2) in the "three wings" platform, Anxun guarantee and modern Weibao are prominent. Hyundai Weibao (now renamed "Modern Environmental Technology Investment") is expected to double its profit this year to 20 million yuan.

Platform environmental service experts are getting better and better: modern Weibao is the main body of the industrial platform, as the regional leader of solid waste treatment in Hunan Province, and the environmental financial service pilot enterprise of the Ministry of Environmental Protection, providing the whole industry chain service. In October 2014, the company signed five environmental protection projects with local governments, in the form of BOT and PPP, with a total amount of 542 million yuan. And invested 15.3 million yuan to control Beijing Zhongke, holding 51%. From winning the big order to holding the background of the Chinese Academy of Sciences, the deep precipitation of Beijing Zhongke shows that the strength of the company has been recognized and the layout has become better and better.

The reform of state-owned enterprises in Hunan is under the guidance of the "opinions" of the provincial party committee and provincial government, the separation of government and enterprises, and the "listing" of state-owned assets. As one of the few listed companies controlled by Hunan SASAC and the only listed company in the provincial transportation system, the company is expected to benefit.

Investment suggestion

We believe that the company's main business is picking up, the "three wings" platform is beginning to take shape, and the environmental protection business is expected to develop rapidly, with performance support, and may benefit from the reform of Hunan state-owned enterprises.

Valuation

It is estimated that the EPS of the company in 15-17 years is 0.51,0.59 and 0.70 yuan, and the PE of the corresponding stock price is 19.8XPY 16.9X and 14.3X.

Risk

The profit of diversified business and the progress of the reform of state-owned enterprises are not up to expectations, and the expenditure on major and medium-sized repairs on old roads is higher than expected.