Incident: On December 11, 2023, the company announced that Blue Flame Holdings plans to use cash to acquire 81% of the shares of Shanxi Coalbed Methane Co., Ltd. held by Shanxi Energy Industry Group Co., Ltd., and that the 81% share deal for Shanxi Coalbed Methane is 360 million yuan, which has been approved by Huaxin Gas Group.
The company plans to acquire Shanxi coalbed methane with 360 million yuan in cash, 1.6 times PB and 18 times PE.
In 2022, Jinkong Equipment, the company's former controlling shareholder, injected 40.05% of the company's shares into Shanxi Gas Group through a capital increase. In 2022, Shanxi Gas Group issued a “Letter of Commitment on Avoiding Peer Competition with Listed Companies” promising to resolve the issue of peer competition between Shanxi Coalbed Methane and listed companies. Therefore, in order to further increase its asset size, Blue Flame Holdings plans to acquire 81% of Shanxi Coalbed Methane Group's shares in the Sun Company of Shanxi Gas Group with 360 million yuan in cash. After the transaction is completed, Shanxi Coalbed Methane became a holding subsidiary of the company and will be included in the scope of the company's consolidated statements. According to the asset evaluation report, the overall assessed value of coalbed methane in Shanxi was 444.8 million yuan, the net profit achieved by Shanxi coalbed methane in 2022 was 2.54 million yuan, and the owners' equity as of 23H1 was 273.93 million yuan. Based on this calculation, the acquisition of PB was 1.6 times and the acquisition of PE was 18 times.
The industrial chain has been extended, and resources have been increased once again. Shanxi coalbed methane development and utilization is its main business, and is mainly responsible for the construction, operation and management of the World Bank loan coalbed methane development and utilization demonstration project. The World Bank project is the first demonstration project in Shanxi Province using World Bank loans to develop and utilize coalbed methane. It is a major transformation and comprehensive reform project in Shanxi Province, and is also a key project at the provincial, municipal and county levels. The project is located in Qinshui County, Jincheng City, Shanxi Province, and consists of two parts: a coalbed methane development project and a coalbed methane liquefaction project. 1) Coalbed methane development project: Located in Longgang Town, Qinshui County, it has put into operation 93 straight wells, 33 horizontal wells, and 30 horizontal wells under construction. According to the “Coalbed Methane Cooperative Development Agreement” signed by CNPC's Shanxi Coalbed Methane Exploration and Development Branch and Shanxi Coalbed Methane on May 18, 2011, the target layer for coalbed methane development in the cooperative zone is 3 #煤层，合作期限包括产能建设期和生产期两个阶段，生产期为达到工业产量的第一口井所产煤层气进入中石油集输系统之日，合同约定生产期的第一和第二个合同年内公司分成90% of the Permian Shanxi Group, and the third contract year of the production period and the subsequent contract year is 80%. 2) Coalbed methane liquefaction project:
Located in Dongshan Village, Duanshi Town, Qinshui County, it mainly includes a 250,000/day nitrogen expansion refrigeration unit for the first phase of liquefaction and a 750,000/day mixed refrigeration unit for the second phase of liquefaction, which can produce 200,000 tons of liquefied coalbed methane per year.
Currently, the first phase of liquefaction is discontinued. Looking at long-term development, Shanxi coalbed methane can increase the company's coalbed methane business volume, promote the expansion of the industrial chain, and further enhance the company's competitiveness.
Investment suggestions: The company lays out an integrated upstream, middle and downstream coalbed methane industrial chain, and has rich coalbed methane resource reserves.
We expect the company's net profit from 2023-2025 to be 601/7.25/910 million yuan, EPS of 0.62/0.75/0.94 yuan/share, respectively, and PE corresponding to December 15, 2023, 12 times, 10 times, and 8 times, respectively, maintaining the “recommended” rating.
Risk warning: risk of falling coalbed methane prices; risk of gas well exploration and mining falling short of expectations; risk of insufficient policy support.