Events:

The company released its annual report for 2017. during the reporting period, the company announced that its operating income was 11.502 billion yuan, an increase of 17.47% over the same period last year, and the net profit attributed to listed companies was 137 million yuan, an increase of 241.25% over the same period last year. The net profit attributable to shareholders of listed companies after deducting non-recurrent profits and losses was 31 million yuan, down 88.45% from the same period last year, and 0.35 yuan per EPS per share Of this total, Q4 realized operating income of 4.008 billion yuan, an increase of 35.57% over the same period last year, an increase of 56.02% over the previous year, and a net profit of 195 million yuan belonging to listed companies, an increase of 382.39% over the same period last year and 426.74% over the previous year.

Comments:

1. The income from the disposal of non-current assets led to a substantial increase in the company's performance compared with the same period last year. In 2017, the company realized a net profit of 137 million yuan belonging to listed companies, an increase of 241.25% over the same period last year. The net profit after deducting non-current assets was 31 million yuan, down 88.45% from the same period last year. The substantial increase in the company's net profit in 2017 mainly came from income from the disposal of non-current assets. in 2017, the company sold its 30 per cent stake in Zhejiang Yaojiang Cultural Plaza Investment and Development Co., Ltd. to Haiyue Technology for 331.38 million yuan, resulting in an income of 262 million yuan from the disposal of non-current assets.

In 2017, the company's management expenses totaled 440 million yuan, an increase of 98.71 percent over the same period last year, mainly due to a substantial increase in the cost of triennial overhaul and research and development in Ningbo Haiyue. In 2017, the company spent 225 million yuan on research and development, an increase of 98.1 million yuan, affecting the company's profits.

The company's financial expenses in 2017 were 175 million yuan, down 56.72 percent from the same period last year, mainly due to the exchange gain of 94.02 million yuan generated by the appreciation of the RMB in Ningbo Haiyue in 2017, and the exchange loss of 119.7 million yuan in 2016. as a result, the company's financial expenses fell by 231 million yuan in 2017.

2. The periodic overhaul of the PDH plant in 2017 affected the profit, which is expected to improve greatly in 2018. In 2017, the Ningbo Haiyue PDH and isooctane units carried out a triennial periodic overhaul (late June to early August), resulting in a decrease in the load of the PDH plant. In 2017, the company produced 494000 tons of propylene, down 8.81% from the same period last year, and the profit declined somewhat. The gross profit of the company's PDH plant in 2017 was 444 million yuan. Down 3.57% from the same period last year.

After continuous R & D investment and process improvement, the maximum start-up load of the company's PDH plant has been increased from 80% to 100%, which has greatly improved the operation efficiency of the device. The raw material adaptability of isooctane plant is greatly enhanced, thus forming a price competition mechanism and reducing the purchasing cost of raw materials.

In 2018, it is expected that the operating rate of the company's PDH plant will be greatly increased and the depreciation cost per ton will be reduced. It is expected that the average international crude oil price in 2018 will be higher than that in 2017, and the company's long-term propane loss signed with international suppliers will be reduced. At present, after negotiation, the company needs to purchase about 45,000 to 135,000 tons of propane each year. As the oil price rises, the difference between the long-term propane price and the spot price narrows, and if the oil price rises sharply, it may still be lower than the spot price, so the company's PDH plant profit is expected to increase significantly in 2018.

According to the company's future development plan, Ningbo Haiyue will continue to extend around the propylene industry chain, expand mergers and acquisitions in the upstream and downstream of the fine chemical industry, and expand and strengthen the related industrial chain. at the same time, the company is planning the second phase of Ningbo project. at that time, we can make full use of the existing public works and land resources to reduce the per ton depreciation and amortization of the first phase.

3. The acquisition of Northern Oil significantly thickens the company's performance.

In June 2017, the company signed the acquisition report of Zhejiang Haiyue Co., Ltd. It is proposed to purchase 80.00% equity interest in Northern Oil invested by HNA Cloud Merchants, 19.00% equity interest in Northern Oil held by Zhongtian Chuangfu in Pingxiang and 1.00% equity interest in Northern Oil held by Tianjin Huibaosheng, the delivery of related assets was completed on November 30, 2017.

Northern Petroleum is a private petrochemical storage and transportation base with large commercial storage capacity, strong turnover capacity, advanced equipment and well-equipped facilities in northern China, with an annual oil turnover of 8.2 million tons. At present, it has a storage area of 850000 cubic meters, a professional petrochemical terminal of 50, 000 tons and a design turnover capacity of 1060 million tons / year. Relying on Nanjiang Deepwater Port, the company has a cross-sea transport pipeline connecting the transport terminal of Tianjin Port, with convenient sea and land transportation, and all the stocks of the company are interconnected, which can directly undertake large tonnage ships. At present, after the railway in Jiannan Port is opened to traffic, the transportation is more convenient, and the turnover rate is expected to be greatly increased. At present, the company has set up Sansha Haiyue Energy Development Co., Ltd., and the company will continue to expand energy trade business in the future.

The original shareholders of Northern Oil promised that the net profit after deduction from 2017 to 2019 would not be less than 0.68,1.0 and 126 million yuan. In 2017, the net profit of Northern Oil would be 94.14 million yuan, and the net profit after deduction would be 81.7 million yuan, exceeding the performance promise.

4. Investment suggestions

The operating rate of the company's PDH plant will increase in 2018, while the impact of propane contract will be reduced, the company's acquisition of Northern Oil will contribute to stable profits, and the company's performance is expected to increase significantly in 2018.

From 2018 to 2020, the company is expected to achieve net profit of 275 million yuan, 315 million yuan and 346 million yuan respectively, EPS is 0.59,0.68 yuan and 0.74 yuan respectively, corresponding to the current stock price of 8.54 yuan, PE is 14.4,12.6 and 11.5 times, covering for the first time, given the "prudent recommendation-A" rating, the target price is 100.12 yuan.

5. Risk hint

(1) the oil price has dropped sharply, and the propane length of the company has affected the profitability of the company's PDH unit; (2) the start-up of the PDH plant and the isooctane unit is not smooth.