Event: Oriental Energy released its annual report in 2016, with operating income of 2.381 billion yuan in the reporting period, down 7.01% from the same period last year; net profit belonging to the parent company was 283 million yuan, down 36.52% from the same period last year; net profit attributed to the parent company after deducting non-recurring profits and losses was 267 million yuan, an increase of 39.85% over the same period. Achieve 0.51 yuan per share of EPS. The company announced that it plans to add 10 shares for every 10 shares and pay out 1.00 yuan (including tax).

The main business has developed steadily, and the continuous commissioning of new thermal power projects has brought growth expectations: during the 2016 annual report period, the company's electric power sales revenue reached 1.477 billion yuan, down 6.45% from the same period last year, accounting for 62.03% of revenue, an increase of 0.37%. The revenue from thermal sales reached 760 million yuan, down 12.39% from the same period last year, accounting for 32.51% of revenue, down 1.96 percentage points.

The business structure is stable, and the proportion of each business is almost unchanged. The gross profit margin of electricity and heat business is 26.28% and 2.88% respectively, and the gross profit margin of the company's overall sales is 22.02%, which is lower than that of the previous year. At the same time, the sales revenue of electricity and heat both declined, mainly due to the decline in electricity price and heat price. Shijiazhuang lowered the sales price of industrial steam in April, resulting in a reduction of the company's net profit by about 28 million yuan. Even in such a grim situation, the company still ensures the profit of all thermal power units, which is also the embodiment of the business level. Since the company acquired a 51% stake in Liangcun Thermal Power in 2015, the latter has become the core of the company's main business, ensuring the stability of the company's traditional business while expanding into the new energy sector. The company is prudent in the development of coal power, steadily promoting Xinhua thermal power waste heat into the market, South Plant 3*58MW gas-fired boiler heating and other projects. These new projects are expected to boost the company's production capacity and bring new growth points to the company's performance when it is put into production in the future. In addition, in order to cooperate with the national electricity reform policy and actively participate in the market competition on the selling side of electricity, the company invested 201 million yuan to set up Hebei Liangneng Power selling Co., Ltd.

In-depth exploration of the field of new energy power generation, in-depth layout of the future market: in 2016, the company made frequent actions in the field of new energy: (1) funded the establishment of a wholly-owned subsidiary Lingqiu Oriental New Energy Company in Lingqiu County, Shanxi Province, with a registered capital of 5 million yuan; (2) set up a wholly-owned subsidiary Yuxian Dongfang New Energy Company in Yuxian County, Shanxi Province, with a registered capital of 5 million yuan, for the development of base photovoltaic power generation projects. (3) invest about 127.4 million yuan in the wind power project with Shouhuaxin, which will increase the production efficiency of 216MW wind power in Shandong Province after completion; (4) increase the capital of Beijing Dongfang New Energy Company with its own capital of 180 million yuan. The various capital actions of Dongfang Energy in the field of clean energy power generation constitute the main theme of the company's current investment activities, and the above projects have accounted for 41.92% of the company's total investment in the current period. At the same time, the reporting period also added Laiyuan Qijiayu 30MW photovoltaic power generation, Pingding County 50MW photovoltaic power generation and other projects. These subsidiaries and projects are distributed in Shandong Province, Shanxi Province and Beijing, which is conducive to further opening the regional pattern of the company's power sales business and changing the status quo of business concentration in Hebei Province. The company will further cater to the national policy and go deep into the field of new energy power generation in the future. At the beginning of 17 years, the company signed strategic cooperation agreements with Kyushu Zhongheng and Shanxi installation for new energy investment projects, and set up two new energy development subsidiaries in Hebei Province. At present, the company's new energy power generation is mainly concentrated in the field of wind power and photovoltaic, and the strategic cooperation agreement signed with SPIC Sichuan Company in January 17 means that the company will enter into hydropower and more new energy fields in the future.

The company has stepped up its investment layout, and the group's assets are expected to continue to be injected: the company raised 1.257 billion yuan through a non-public offering in 2015. It is mainly used to buy a 61% stake in China Electric Power Investment Shijiazhuang heating Co., Ltd. And a 51% stake in Shijiazhuang Liangcun Thermal Power Co., Ltd. By the end of the 2016 annual report period, all the funds raised had been invested in relevant projects. As the profit core of the company, Liangcun provides stable support for the expansion of the company's main business. The investment of Dongfang Energy reached 757 million yuan in 2016, up 672.58% from the same period last year. A strong investment layout can help enterprises to adjust their business structure more efficiently in the future. SPIC, the company's major shareholder, currently has an asset securitization rate of about 28%, which is significantly higher than that of the other four major power generation groups. On March 20, 2017, SPIC signed two cooperation framework agreements on debt-to-equity swap of 30 billion yuan of intended funds, reflecting his determination to work on asset securitization. As the only listing platform in the group around the Bohai Sea and Beijing-Tianjin wing, Dongfang Energy is expected to get more group capital injection in the future to help the strategic layout of the company.

Investment suggestion: we estimate that the EPS of the company in 2017-2019 will be 0.73, 0.92 and 1.12 yuan, respectively, and the performance growth rate will be 41%, 27%, 22%. Considering the company's active layout in the areas of new energy and electricity sales, the company was given a buy-An investment rating with a six-month target price of 20.00 yuan.

Risk hints: the economic slowdown leads to a decline in electricity demand; the risk of thermal fuel price stability; and the return on new energy investment is lower than expected.