Events:
Baichuan Gas, a wholly-owned subsidiary of Baichuan Energy, acquired in cash the 100% equity interests of Zhuolu Earth Gas Co., Ltd. and Suizhong Earth Natural Gas Pipeline Co., Ltd., held by Beijing Fengyinxiang Investment Co., Ltd., with a transaction amount of RMB 195 million and 25 million yuan respectively.
Comments:
Complete the urban gas business map of Beijing-Tianjin-Hebei region and continuously enhance regional coordination.
Zhuolu Land is the main target of this M & A, which is mainly responsible for operating gas supply and installation business in some areas of Zhangjiakou City, Cangzhou City and Baoding City. From January to August 2019, it achieved an operating income of 84.88 million yuan and a net profit of 4.68 million yuan. Suizhong Land, another bid, is currently in the construction stage and will be mainly engaged in the construction of gas supply projects when completed, and its business scope will cover some areas of Huludao City that have not yet been connected to the natural gas pipeline network. The business operation area of Zhuolu Land and Suizhong Land belongs to the core area of Beijing-Tianjin-Hebei coordinated development, which is an important supplement to the layout of gas niche market in Baichuan Energy City, which significantly expands the company's operation scale. at the same time, it will also form a strong synergy with the company's existing business areas in terms of pipe network, procurement and management.
The advantages of channel and operation help improve the profit margin of the target and thicken the company's overall profit.
Baichuan Energy is a leading urban gas service provider in China. Compared with the target company, Baichuan Energy has significant advantages in both the gas purchase side and the operation side. After the company acquired Fuyang Guozhen Gas in June 2018, it helped it achieve a net profit of 90 million yuan in the first half of 2019, accounting for 18% of the company's total net profit, and its net profit margin increased to 17.2% from 15.0% in 2018. After the completion of this acquisition, the company will still make use of its own channel advantages to help Zhuolu greatly reduce gas source costs, while making use of its rich experience in urban pipeline gas operation to help strengthen management capabilities and improve operational efficiency.
The profit structure is continuously optimized, and there is plenty of room for valuation and repair.
In the context of price reform, the scale of the company's connecting profits will remain stable, the overall engineering attribute of the company's business will be weaker, and urban gas sales will gradually become the main driving force of profits. The strategy of Beijing-Tianjin-Hebei integration continues to advance, at the same time, there is a large gasification rate in Fuyang, and the growth rate of the company's natural gas sales business will be higher than the national average. In addition, the gross error repair of the gas sales business is expected to continue to increase the proportion of the company's gas sales profits. It is estimated that the profit share of gas sales business is expected to reach about 45% in 2020, which is basically consistent with the profit structure of similar companies. At present, the valuation of the company is the lowest in the A-share gas industry, the PE is only 8-9 times, and the PE of companies in the same industry are about 16 times, so there is more room for valuation repair.
Investment advice: the profit structure continues to improve, low valuation and high dividends, and it is strongly recommended that the company's dividend has exceeded 50% of the net profit for two consecutive years, assuming that the company's dividend in 2019 continues to reach 50% of the net profit. According to our forecast, the cash dividend will be 610 million yuan. Based on the current market capitalization of 105 billion, the company's dividend rate will reach 5.81%. The company has good profit quality and abundant cash flow. It is expected that the company will continue to have mergers and acquisitions projects in the future.
We estimate that the company's 2019-21 return net profit is 1.22 billion / 1.42 billion / 1.68 billion, corresponding to PE 13.14x / 7.40x / 6.25x, high dividend and low valuation, continue to "highly recommend" rating.
Risk Tips:
Gas industry policy risk; natural gas gate price and connection fee price fluctuation risk; market development and business development is not as expected
