National urban gas companies with long-distance transmission capacity have benefited from changing coal to gas in Beijing, Tianjin and Hebei. The company is a comprehensive enterprise focusing on the development and application of natural gas and environmental protection engineering, and has developed into an urban gas operator with integrated upstream, middle and downstream and cross-regional operation. The company's long-distance natural gas pipelines are mainly distributed in Hunan, Hebei and Shandong, serving more than 40 cities and counties. By the end of 2016, the total mileage of the company's pipelines has reached 6934 km, the length of long-distance pipelines is 884km, and the designed gas supply capacity is about 3.5 billion cubic meters per year. Beijing-Tianjin-Hebei region is the key layout area of the company. Yingzhang Line and other long-distance pipelines are distributed in and around Beijing-Tianjin-Hebei and have franchises in Zhangjiakou, Hengshui and other cities. In the future, the company will continue to benefit from the promotion of "coal to gas" in Beijing-Tianjin-Hebei region and the rapid growth of natural gas demand.
Environmental protection business benefits from non-electricity bid raising, which is expected to turn losses into profits. Relying on Zhengshi Tongchuang, a wholly-owned subsidiary, the company carries out desulphurization, denitrification and dust removal services in electric power, iron and steel, building materials and other industrial fields. Its business covers 20 provinces and cities across the country, and more than 100 projects have been completed. Zhengshi Co-Innovation has strong R & D strength, has established in-depth cooperation with the process Institute of the Chinese Academy of Sciences and other well-known domestic scientific research institutes, and has undertaken a number of national 863 projects such as "complete sets of technology and equipment for semi-dry desulfurization of sintering flue gas". In recent years, Zhengshi Co-Innovation and the Institute of process of the Chinese Academy of Sciences have jointly applied for 14 national patents, and the related desulphurization and denitrification technology was granted a US patent at the beginning of 2017. Affected by the decline in orders and other factors, Zhengshi Tongchuang was in a state of loss in the first half of 2017. We judge that with the start of atmospheric emission standard raising in non-electrical industries such as the iron and steel industry, the company's environmental protection business is expected to usher in an inflection point, and its environmental protection business is expected to turn a loss into a profit in 2018.
The consumption potential of natural gas is great, and the short-term increment of "coal to gas" is large. Natural gas is a stable and economical clean energy. Increasing the proportion of natural gas consumption is the basic national policy of our country. In recent years, China's natural gas consumption has shown a trend of rapid growth. In 2017, China's natural gas consumption was 239.4 billion square meters, an increase of 15 percent over the same period last year. According to the 13th five-year Plan for Natural Gas Development, by 2020, the primary transportation capacity of China's natural gas pipeline will reach 400 billion cubic meters, and the comprehensive guarantee and supply capacity will reach 360 billion cubic meters, providing strong support for the rapid growth of China's natural gas demand. Bulk coal (especially in the heating season) is one of the important pollution sources of haze. Beijing-Tianjin-Hebei region has made great efforts to promote clean heating in recent years. According to the Clean heating Plan jointly issued by ten ministries and commissions, by 2021, there are 12 million households in the northern region of "coal to gas". We estimate that the corresponding natural gas connection fee market space is 36 billion yuan and natural gas demand is 16.8 billion square meters per year.
The "non-electricity" emission standard is about to start, and the market space of the iron and steel industry is 60 billion. On June 15, 2017, the Ministry of Environmental Protection issued a revised list of 20 national emission standards for air pollutants, including Iron and Steel Sintering and pellet Industry (draft for soliciting opinions). It is proposed to revise the atmospheric emission standards for iron and steel, metallurgy, cement, glass, ceramics and other industries. The standard raising and transformation of atmospheric emissions from non-power industries will bring more than 100 billion investment in environmental protection. Take the iron and steel industry as an example, at present, there are about 900sintering machines in the country, with an area of 116000 square meters and an investment of 500000 yuan per square meter, with a market space of nearly 60 billion and an annual operating cost of about 18 billion.
Profit forecast and valuation: from 2017 to 2019, the company's EPS is expected to be 0.49,0.70,0.84 yuan respectively, corresponding to 24,17,14 times, the company's environmental protection and gas business is improving, maintaining a "highly recommended" rating.
Risk tips: 1, the consumption demand of natural gas is lower than expected; 2, the bid raising in the non-electricity field is not as expected.