Main points of investment:
The original business growth is weak, the acquisition target to improve the company's performance: the company's original main business is the research and development, production and sales of horticultural supplies. Due to the adverse effects of the severe market environment at home and abroad and the intensification of market competition, the company's business income and product gross profit margin have decreased year by year since 2015.
At the same time, the company's export revenue accounts for about 70% of the revenue, with the beginning of the Sino-US trade war, the company's 2018 revenue fell 13.57% year-on-year, the company's transformation Brooks no delay. From the beginning of 2018 to the end of 2019, the company has repeatedly used cash payments and share issues to acquire Zhongwobang to enter the tight gas production business. As of December 2019, the company has become the largest shareholder of Zhongwa State, and now holds 48.32% of the shares.
Zhongwobang-high-quality tight gas producer: Zhongwobang is a company specializing in natural gas exploration, exploitation and sales. In 2009, it signed a sharing mining contract with CNPC and won the exploration, development and production management rights of 1524 square kilometers in Shilou West District of Shanxi Province for a period of 30 years. By the end of 2018, Shilou West Block has obtained 1276 billion square meters of proven geological reserves, 61 billion square meters of technical recoverable reserves and 44.3 billion square meters of economic recoverable reserves registered by the Ministry of Natural Resources. In May 2017, Yonghe 18 well area entered the stage of commercial production, resulting in a sharp increase of 124.83% of the company's gas sales in 2017 compared with 2016. Gas sales in the first half of 2019 are 4.6 billion square meters, which is expected to increase by more than 30% over 2018 for the whole year. With the development of 1.2 billion square meters / year natural gas production project in Yonghe 45-Yonghe 18 well area and 800 million square meters / year development project in Yonghe 30 well area, it is expected to greatly increase the natural gas production in the west area of Shilou and enhance the flexibility of the company's performance in the future.
Under the energy security strategy, tight gas in unconventional natural gas has become an important supplement. Under the energy security strategy, tight gas in unconventional natural gas has become an important supplement: for a long time, China's natural gas production has been lower than the national expected target. With the implementation of the coal-to-gas policy in recent years, the growth rate of China's demand for natural gas exceeds that of production, resulting in a surge in external dependence of natural gas from less than 10% in 2010 to nearly 43% in 2019. It is a serious threat to China's energy security, so it is urgent to increase the output of natural gas. The growth rate of conventional natural gas production has slowed down in recent years, and unconventional oil and gas will become the main incremental energy in the next 5-10 years. At present, due to the advantages of less difficulty in exploitation and lower cost, the tight gas in unconventional gas has contributed the most production. With the implementation of the tight gas subsidy relief policy, its mining enthusiasm will be further enhanced in the future.
Maintain a "buy" rating. Taking into account the increase in financial costs of listed companies and the decline in the profitability of the parent company's horticulture business affected by trade frictions, the net profit forecast for 2019 is reduced to 73 million yuan. It is estimated that the company's operating income from 2019 to 2021 will be 1.61 billion yuan, 2.28 billion yuan and 4.07 billion yuan respectively; the net profit will be 73 million yuan, 397 million yuan and 808 million yuan respectively; and the dynamic PE will be 63, 11 and 6 times respectively, maintaining the "buy" rating.
Risk hints: the risk that natural gas production falls short of expectations; the risk of uncertain time for obtaining new well mining licenses; the risk of falling natural gas prices; the uncertain impact of the company's horticultural supplies-related business on performance; the company does not have complete comparability between the standard companies, and the relevant data are for reference only.