Investment highlights:
Shengli Co., Ltd. announced its 2017 semi-annual report. In the first half of 2017, the company achieved revenue of 1,648 billion yuan, an increase of 38.36% over the previous year, and net profit of 42,557 million yuan, an increase of 130.44% over the previous year. The main reason for the increase in performance was the sharp increase in revenue from the company's main natural gas business. In terms of each share, the company achieved an EPS of 0.05 yuan in the first half of the year, an increase of 150% over the previous year, and the weighted average return on net assets was 1.99%, an increase of 1.07 percentage points over the previous year.
The industrial transformation was completed, and the natural gas business became the company's main source of revenue. In 2016, the company completed its exit from the agrochemical business and accelerated the pace of strategic transformation, and the natural gas business continued to grow rapidly. In the first half of 2017, the path of mergers and acquisitions continued, continuously expanded the scale and efficiency of the main industry, and focused on improving the operating quality and efficiency of natural gas units to achieve steady development of natural gas stock assets. Furthermore, in the context of “gas instead of coal,” the company's “Muramura-dori” business grew rapidly, and distributed energy projects progressed smoothly. In the first half of the year, the company's natural gas business revenue was 1,144 million yuan, and the gas pipeline manufacturing business was 438 million yuan. Together, the two businesses accounted for 96.0% of total revenue and 95.8% of total gross profit.
Use terminal resources to develop automobile charging and switching business. In order to develop the new energy business, Shengli Co., Ltd. signed a “Strategic Cooperation Agreement” with Qingdao Terude to jointly promote strategic cooperation in the field of automobile charging. The current strong alliance began with terminal fields such as gas stations owned by Shengli Co., Ltd. to promote new energy vehicle charging business cooperation. Through this strategic partnership, the company will enter the automotive charging and switching field, use the existing market terminal network to build a multi-level new energy supply system, and open up new business growth points.
Profit forecasts and investment ratings. We expect the EPS of Shengli Co., Ltd. to be 0.13, 0.29, and 0.32 yuan respectively from 2017 to 2018, and the BPS is expected to be 2.54 yuan by the end of 2017. Based on the 2017 BPS and 3.5 times net market ratio, we gave the company a target price of 8.89 yuan to maintain the “increase in holdings” investment rating.
Risk warning: transformation risks; gas business development progress falls short of expectations, etc.