Event

The company's performance forecast for the first half of 2017 is expected to achieve a net profit of about 400 million yuan belonging to the parent company. At present, the production and operation of the company is good, and taking off the hat in 2017 will be a high probability event.

Brief comment

The 16-year loss is mainly due to the impairment of withdrawing from the coal mine.

In 2016, the company realized a net profit of-630 million yuan attributed to the parent company, and was crowned "* ST" with losses for two consecutive years. According to the list of coal industry to eliminate excess capacity and withdraw from coal mines announced by the people's Government of Henan Province from 2016 to 2018, the company's four coal mines, including Gaoling Coal Mine, Micun Coal Mine, Lugou Coal Mine and Jiao No.2 Coal Mine, will be gradually closed and withdrawn from 2016 to 2018. The company tested the impairment of the fixed assets and projects under construction of the above four coal mines, with an impairment of 825 million yuan. The main reason for the loss is that the impairment is calculated this time, and the company deducts 178 million yuan in net profit after deducting non-profit for 16 years.

The current production capacity is 10 million tons, and it has been put into production without increment in the future.

In terms of production, the current capacity of listed companies is about 10 million tons, and the actual output is equal to the production capacity. At present, there will be no incremental release after the construction of the mine. At the same time, the coal production capacity of the group is about 26 million tons (including 10 million tons of listed companies), but other coal assets of the group are generally profitable, and the possibility of subsequent injection into listed companies is relatively small.

He has made a good profit for 17 years, and he can take off his hat.

In terms of price, the average price of Q2 is about 400 yuan / ton, which is 50 yuan lower than the average price of Q1 450; in terms of cost, the total cost of per ton of coal is about 300 yuan, compared with 270 yuan last year. At present, the company has issued a forecast for the first half of the year and is expected to achieve a net profit of about 400 million yuan in the first half of 2017.

Logistics sector controls the scale of business and promotes profitability

The company's logistics business is mainly divided into internal and external parts. Internal positioning is not profitable, mainly for the company's business to save procurement costs; external competition between state-owned enterprises and other companies is also lack of advantages. Therefore, the profitability of the company's logistics sector is very general. But now, the development thinking of the company has changed, and the province no longer blindly requires enterprises to increase business income, so the business scale of the follow-up logistics sector will be appropriately reduced, but profits can basically be guaranteed. The company suffered a slight loss in the logistics sector in 2016 and is expected to make a profit this year.

Company fundamentals have support, follow-up attention to Henan national reform promotion process currently the company has forecast 2017H1 attribution net profit of about 400 million yuan, market capitalization of only more than 6 billion, taking into account this year's coal market price trends and the company's continuous cost control, the company's subsequent completion of capping will be a high probability time. At the same time, it is worth noting that the company was suspended in June 2016, and Zheng Coal Group, the controlling shareholder, sent a letter to "intend to transfer the company's equity to Henan Investment Group Co., Ltd." and then resumed trading because no agreement had been reached on related matters. Henan's state reform has been fermenting since 2017, and Governor Chen Runer has made many public speeches to emphasize the importance of state reform. It can be predicted that 2017 will be a year in which Henan's state-owned enterprise reform will be comprehensively tackled and promoted in a down-to-earth manner, and the government's efforts to promote it will be of great importance.

Taking into account the relatively solid fundamentals of the company and the expectations of the follow-up national reform in Henan, we expect the company to have a "buy" rating of 0.69 and 0.50 EPS in 2017 and 2018 respectively.