Events:

On June 23, the company received a letter from Tianlu Group, the controlling shareholder, that the people's Government of Tibet Autonomous region and the Power Construction Group signed the Strategic Cooperation Agreement on China Electric Power Construction Group Co., Ltd. to participate in the reform and reorganization of state-owned enterprises in Tibet Autonomous region, and reached a consensus on further deepening cooperation and establishing capital ties between Tianlu Group, the company's controlling shareholder, and Electric Power Construction Group. Under the premise of legal compliance, the Power Construction Group will give full play to the advantages of central enterprises and carry out comprehensive joint venture and cooperation and common development with Tianlu Group from different aspects of business, management, property rights and so on.

Comments:

Central enterprises help enrich the people and invigorate Tibet, and China Electric Power Construction will not give way. This cooperation agreement was signed under the background of the conference of "Central Enterprises to help enrich the people and invigorate Tibet". The meeting was jointly sponsored by the Tibetan people's Government and the State-owned assets Supervision and Administration Commission and attended by the secretary of the party committee of the autonomous region and the director of the State-owned assets Supervision and Administration Commission. We believe that the standard of the meeting is higher, and the level of assistance to Tibet will be raised to a higher level. The Power Construction Group is in the vanguard of assisting Tibet, and Yan Zhiyong, secretary of the party committee and chairman of the group, delivered a speech as a representative of the central enterprise at this meeting, which to a certain extent shows the autonomous region's recognition of the Tibet assistance work of the Power Construction Group. The agreement clearly states that the Power Construction Group will participate in the reform and reorganization of state-owned enterprises in the autonomous region, and emphasizes the relationship of establishing capital ties with it. We expect that the Power Construction Group may no longer cooperate deeply with the company only at the operational level, but may also make achievements at the capital level, such as the reform of state-owned enterprises.

Cement to consolidate the foundation, engineering to expand the frontier. In the first five months, the average price of taxable cement in Tibet was about 755 yuan, an increase of 170 yuan over the same period last year. With the arrival of the peak construction season, the price of cement in Tibet is expected to remain high throughout the year and enhance the profitability of the company's cement business. Previously, the company won the bid for Guizhou Expressway PPP Project in cooperation with Electric Power Construction, which means that the company's highway construction business is no longer limited to Tibet and has successfully achieved the strategic goal of "going out". China Power Construction has a high level of PPP operation and good quality of bid-winning projects. It is expected that when the risk is controllable, the company will continue to further promote the "going out" strategy by taking advantage of PPP and the power of China Power Construction, so as to open a bigger market for highway construction business.

Investment suggestion: the company's main cement business is prosperous, with the help of PPP, the construction business has successfully gone out, the cooperation between the superposition company and power construction has deepened, and the country will speed up. The current stock price corresponds to 15.7 times PE in 2017, and we reiterate "buy".

Risk hint: investment in fixed assets in Tibet is not as expected; the progress of the PPP project is not as expected.