Events:

When the company released its quarterly report for 2018, it was announced that during the reporting period, its operating income reached 5.486 billion yuan, an increase of 112.38 percent over the same period last year, and the net profit attributed to listed companies was 101 million yuan, an increase of 271.48 percent over the same period last year. The net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses was 82 million yuan, an increase of 162.59 percent over the same period last year, and realized 0.22 yuan per EPS per share.

Comments:

1. With Northern Petroleum, the company's revenue has increased significantly.

2018Q1 achieved an operating income of 5.486 billion yuan, an increase of 112.38% over the same period last year, mainly due to the consolidation of Northern Oil acquired by the company. The company completed the acquisition of Northern Oil on November 22, 2017, and Northern Oil's operating income in 2017 was 11.069 billion yuan. The company's revenue growth was also partly due to the increase in sales prices of chemicals such as propylene and isooctane. The average 2018Q1 propylene price was 8116 yuan / ton, up 7.88% from the same period last year.

2. PDH boom and foreign exchange earnings have increased, and Ningbo Haiyue new materials profit has greatly improved.

2018Q1 achieved a net profit of 101 million yuan belonging to listed companies, an increase of 271.48% over the same period last year, mainly due to the improvement of the profit of Ningbo Haiyue new materials and the growth of the company's investment income.

The profit and loss of minority shareholders of 2018Q1 Company is 60.25 million yuan, an increase of 60.86 million yuan compared with the same period last year, while the profit and loss of minority shareholders of the company is mainly 49% of the profit and loss of Ningbo Haiyue New material. Therefore, it is estimated that the net profit of Ningbo Haiyue New material 2018Q1 is about 120 million yuan, which is much better than the profit and loss balance in 2017.

There are two main reasons for the substantial improvement in 2018Q1 profit of Ningbo Haiyue New Materials. One is the widening of PDH price difference and the improvement of profit. The average price difference of 2018Q1 PDH is 4290 yuan / ton, an increase of 5.64% over the same period last year. Second, the increase in exchange earnings, 2018Q1's financial expenses of 15.52 million yuan, down 43.12 million yuan compared with the same period last year, mainly due to part of the company's US dollar borrowing, while purchasing propane denominated in US dollars, 2018Q1 RMB exchange rate rose from 6.51 to 6.27, the rise of RMB exchange rate led to the company's Q1 exchange earnings increased.

The growth of the company's investment income, 2018Q1's investment income of 54.53 million yuan, an increase of 23.44 million yuan over the same period last year, mainly due to the transfer of equity in Zhejiang Zhongnan Cartoon Co., Ltd. by Tianyue Venture Capital Co., Ltd., a wholly owned subsidiary of 2018Q1.

3. The profit was affected by the periodic overhaul of the PDH plant in 2017, and the profit is expected to improve significantly in 2018.

In 2017, Ningbo Haiyue PDH and isooctane units carried out a triennial periodic overhaul (from late June to early August), resulting in a decrease in the load of PDH units. In 2017, the company produced 494000 tons of propylene, down 8.81 percent from the same period last year, and profits declined somewhat. In 2017, the gross profit of the company's PDH plant was 444 million yuan, down 3.57 percent from the same period last year.

After continuous R & D investment and process improvement, the maximum start-up load of the company's PDH plant has been increased from 80% to 100%, which has greatly improved the operation efficiency of the device. The raw material adaptability of isooctane plant is greatly enhanced, thus forming a price competition mechanism and reducing the purchasing cost of raw materials.

In 2018, it is expected that the operating rate of the company's PDH plant will increase significantly, and the depreciation expense per ton will decrease. It is expected that the average international crude oil price in 2018 will be higher than that in 2017, and the company's long-term propane loss signed with international suppliers will be reduced. At present, after negotiation, the company needs to purchase about 45,000 to 135,000 tons of propane each year. As the oil price rises, the difference between the long-term propane price and the spot price narrows, and if the oil price rises sharply, it may still be lower than the spot price, so the company's PDH plant profit is expected to increase significantly in 2018.

According to the company's future development plan, Ningbo Haiyue will continue to extend around the propylene industry chain, expand mergers and acquisitions in the upstream and downstream of the fine chemical industry, and expand and strengthen the related industrial chain. at the same time, the company is planning the second phase of Ningbo project. at that time, we can make full use of the existing public works and land resources to reduce the per ton depreciation and amortization of the first phase.

4. the acquisition of Northern Oil significantly thickens the performance of the company.

In June 2017, the company signed the acquisition report of Zhejiang Haiyue Co., Ltd. It is proposed to purchase 80.00% equity interest in Northern Oil invested by HNA Cloud Merchants, 19.00% equity interest in Northern Oil held by Zhongtian Chuangfu in Pingxiang and 1.00% equity interest in Northern Oil held by Tianjin Huibaosheng, the delivery of related assets was completed on November 30, 2017.

Northern Petroleum is a private petrochemical storage and transportation base with large commercial storage capacity, strong turnover capacity, advanced equipment and well-equipped facilities in northern China, with an annual oil turnover of 8.2 million tons. At present, it has a storage area of 850000 cubic meters, a professional petrochemical terminal of 50, 000 tons and a design turnover capacity of 1060 million tons / year. Relying on Nanjiang Deepwater Port, the company has a cross-sea transport pipeline connecting the transport terminal of Tianjin Port, with convenient sea and land transportation, and all the stocks of the company are interconnected, which can directly undertake large tonnage ships. At present, after the railway in Jiannan Port is opened to traffic, the transportation is more convenient, and the turnover rate is expected to be greatly increased. At present, the company has set up Sansha Haiyue Energy Development Co., Ltd., and the company will continue to expand energy trade business in the future.

The original shareholders of Northern Oil promised that the net profit after deduction from 2017 to 2019 would not be less than 0.68,1.0 and 126 million yuan. In 2017, the net profit of Northern Oil would be 94.14 million yuan, and the net profit after deduction would be 81.7 million yuan, exceeding the performance promise.

5. Investment suggestions

The operating rate of the company's PDH plant will increase in 2018, while the impact of propane contract will be reduced, the company's acquisition of Northern Oil will contribute to stable profits, and the company's performance is expected to increase significantly in 2018.

From 2018 to 2020, the company's net profit is expected to be 275 million yuan, 315 million yuan and 346 million yuan respectively, and EPS is 0.59,0.68 yuan and 0.74 yuan respectively, corresponding to the current share price of 8.70 yuan, PE is 14.7,12.9 and 11.7 times respectively, maintaining the "prudent recommendation-A" rating, with a target price of 100.12 yuan.

6. Risk hint

(1) the oil price has dropped sharply, and the propane length of the company has affected the profitability of the company's PDH unit; (2) the start-up of the PDH plant and the isooctane unit is not smooth.