Events:

According to the company's mid-2017 report, in the first half of 17 years, the company achieved revenue of 999 million yuan, an increase of 8.87% over the same period last year; net profit of 60.64 million yuan, down 63.29%; and net profit of 57.68 million yuan, an increase of 28.54% over the same period last year, in line with Shenwan Hongyuan's expectations.

Main points of investment:

The increase in electricity sales led to an increase in power business revenue in the first half of the year, and the decline in the proportion of spontaneous electricity led to a decline in gross profit margin. The closure of small hydropower in the company's area since July is expected to lead to a further increase in the cost of purchasing electricity. In the first half of the year, the company completed electricity sales of 1.447 billion kilowatt hours, an increase of 10.07% over the same period last year. Due to the decrease in water inflow in the first half of the year compared with the same period last year, the company's spontaneous electricity decreased by 7.7% compared with the same period last year, and the increase in the proportion of purchased electricity increased the cost of the company's power business. The gross profit margin of the power business 17H1 was 24.65%, down 2.98% from the same period last year. Since July, the company has announced that due to illegal nature conservation and environmental cleaning, some of the company's own units and some grid-connected hydropower units in the region have been shut down one after another. the closure of the above units will increase the company's purchase of electricity from the national network, resulting in a further increase in the cost of purchasing electricity.

Benefit from "coal to gas" gas sales, connection both increased, gas business income, gross profit margin increased compared with the same period last year. Benefiting from the promotion of the "coal to gas" policy, the company sold 70.09 million cubic meters of gas in the first half of the year, an increase of 10.55% over the same period last year. The number of new connection users of the company further increased, the proportion of connection business with high gross margin increased, and the gross profit margin of gas business increased by 2.63 percentage points over the same period last year.

The first half of the year's net profit fell sharply compared with the same period last year, mainly due to the larger non-recurrent profit and loss and the higher base of return net profit in the same period last year. In the same period last year, the company won the lawsuit with Baofang Electric and turned back the provision for impairment of receivables of 73.8 million yuan; the bankruptcy ruling of Leshan Tianwei ended and the company returned to 37.07 million yuan of non-operating income. The above items resulted in a total non-recurrent profit and loss of 111 million yuan, resulting in a higher base of return net profit in the same period last year. In fact, the company realized a total non-return net profit of 57.68 million yuan in the first half of this year, an increase of 28.54% over the same period last year.

Sign a strategic cooperation agreement to expand the market space, win the bid for sewage treatment projects to open up new growth points. In the first half of the year, the company signed cooperation framework agreements with the people's governments of five counties and districts, including Emeishan City, as well as the Management Committee of Emeishan Scenic spot and Leshan High-tech Development Zone. In the future, the two sides will cooperate on power grid planning and construction, enterprise electricity consumption, gas consumption, water service and other aspects to further expand the company's market space. In August, the company and Sichuan Junhe Environmental Protection jointly won the project of sewage treatment stations in 18 market towns, including Mata Town, Jingyan County, Leshan City, with a total amount of 57.53 million yuan, which is helpful for the company to open up the sewage treatment market and create new growth points.

Profit forecast and rating: taking into account the increase in the cost of purchasing electricity caused by the closure of small hydropower in the company's operating area, we downgrade the company's profit forecast. The company's net profit for 1719 is expected to be 1.57,1.69 and 185 million yuan (before the adjustment is 1.8,1.95 and 206 million yuan), and the corresponding earnings per share are 0.29,0.31 and 0.34 yuan per share. The current PE of the stock price is 26 times, 24 times and 22 times, respectively. As the only regional power grid company in Leshan region, the company is expected to maintain its "buy" rating by benefiting from the growth of energy demand in the region and the industry opportunities brought about by electricity reform and national reform.