In our in-depth report "products Zhongda: China supply chain Integration Service Leader" in July 2019, we explained in detail the advantages of the company's supply chain integration services. In the past year, there have been several important changes in the external environment and the company's business development and management, which not only strengthen the company's competitive advantage, but also strengthen our main logic of recommending the company. We believe that these changes have not been effectively interpreted by the market, which is the main background for writing this report.
Change 1: the performance stability under the epidemic is higher than expected. 2020H1 achieved a net profit of 1.616 billion yuan (+ 1%). Among them, Q1 610 million yuan (- 33%), the performance decline is relatively small, mainly due to the realization of current hedging income of 389 million yuan, accounting for 64% of Q1 net profit Q210.06 billion yuan (+ 45%). The larger increase in performance is due to the company's characteristics different from other supply chain service enterprises and its own endogenous growth.
Change 2: there are many new achievements in vertical integration and platform innovation of product chemical industry and Zhejiang oil center. Since the second half of 2019, the product chemical industry has accelerated the development of vertical industrial chain business, blooming and bearing fruit in many new fields and new companies. In addition, we think that we should pay attention to the layout of the product chemical and grain chemical plate. In the first half of 2020, Zhejiang Oil Center realized the counter-trend growth of various businesses under the adverse influence of the epidemic and large fluctuations in crude oil prices. The trade volume of member enterprises is 79.429 billion yuan (+ 32%).
Change 3: spin-off listing is expected to usher in a revaluation. On July 1, 2020, the company announced that it planned to spin off the subsidiary products and environmental protection to the main board of the Shanghai Stock Exchange to be listed on the main board of the Shanghai Stock Exchange, so as to create an independent listing platform for the company's energy and environmental protection comprehensive utilization service business. The net profit of product ring energy increased from 110 million in 2014 to 730 million in 2019, with a compound annual growth rate of 46% and strong profitability. The reasonable market value after listing should be about 10 billion yuan. The spin-off and listing of subsidiaries is an important measure in the reform of the company's state-owned enterprises, which is not only conducive to strengthening the advantages of subsidiaries, but also expected to usher in a revaluation of the overall value of the company.
Investment suggestion: we forecast that the annual return net profit of the company in 2020-21-22 is 28.27, 33.44, 3.805 billion yuan, EPS 0.56, 0.66, 0.75, corresponding to the current price of PE 8.3, 7.0, which is still undervalued. Maintain the "buy" rating and target price of 6.50 yuan, corresponding to 11.5 times PE in 2020.
Risk hint: global economic recovery is lower than expected, asset disposal and other non-economic fluctuations