Core viewpoints

The boom cycle inflection point of the oil and gas industry chain is determined, and the LNG process package equipment demand of the company is flexible and timely.

From the perspective of cyclical plate rotation, it is appropriate to focus on investment opportunities in the oil and gas equipment and service sector in 2019. With the repair of oil prices, the deterministic recovery of three barrels of oil capital expenditure in 2019 is the main driving force for the performance repair of domestic oil and gas equipment and service sector enterprises.

The future development of domestic oil and gas will focus on natural gas. From the perspective of policy and demand, among the domestic oil service equipment and service plate, the fracturing equipment in the upstream development link, the pipe network in the middle reaches and LNG-related equipment have the best prospect. Taking into account the fundamentals of the industry and cycle rhythm, the next 2-3 years, the middle reaches of LNG reception, transport, storage and peak regulation equipment flexibility space is the largest.

The company has fully benefited from the construction of hydrogen energy infrastructure, and with strong certainty of hydrogen energy investment, China has begun to increase its planning and support for the field of hydrogen fuel cells. a number of national plans have listed the development of hydrogen energy and fuel cell technology as a key task. Fuel cell vehicles are listed as key support areas, and it is clearly proposed to realize the demonstration and application of 5000 vehicles in the field of public service vehicles in specific areas by 2020. Construction of 100 hydrogenation stations It will realize the application of 50, 000 vehicles in 2025, build 300 hydrogenation stations, and realize the commercial application of 1 million fuel cell vehicles in 2030, with the goal of building 1000 hydrogenation stations, which will promote the development of hydrogen fuel cell to a strategic height.

The company's precipitation in the LNG process and liquid process will make the company have obvious advantages in the equipment development and technology transfer of the hydrogen filling station, and will fully benefit from the investment of domestic hydrogen energy infrastructure equipment. In the future, the acceleration of domestic hydrogen energy development will open a broader application space for the company's core functional equipment such as liquefaction, purification, pry loading and filling.

For the first time, coverage will be rated as "overweight".

We expect the company to achieve operating income of 3.58,5.11 and 611 million yuan in 2019-2021, compound growth of 31% in the next three years on a 2018 basis, and net profit attributable to the parent company of 900,000 yuan (up-108% year on year), 3700 and 49 million yuan. The total share capital is 125 million shares, corresponding to 0.08,0.30 and 0.39 yuan of EPS.

The main points of valuation are as follows: on October 31, 2019, the share price was 14.78 yuan, with a total share capital of 125 million shares, corresponding to a market capitalization of 1.8 billion yuan, and the PE in 2019-2021 was about 196,49 and 38 times. The company's core LNG equipment business in 2019 is likely to be a cyclical inflection point, and we will return to the economic track in the future. Considering the company's layout in hydrogen energy utilization, we have for the first time covered and given an "overweight" rating.

Risk hint: LNG equipment demand recovery is lower than expected; hydrogen energy infrastructure construction is lower than expected.