Core ideas:
Event: on the evening of July 19, the company announced that it was planning to acquire no less than 60% of the shares of Xi'an Stan Instruments, and had signed a letter of intent to acquire shares. If the acquisition is successfully completed, the company will hold no less than 87.82% of Sitan's shares, and Sitan Instruments will become a subsidiary of the company.
The proposed acquisition of Sitan Instruments at a reasonable price will significantly increase the company's performance after the acquisition: Sitan Instruments (New third Board listed Company, Stock Code: 832801) is mainly engaged in the technical development and special instruments in the field of oil and gas production engineering. It is the largest R & D and manufacturing enterprise of downhole water injection tools and logging tools in China, with a comprehensive gross profit margin of about 60%, high technical content of products and high customer viscosity. In 2016, the company strategically invested 27.82% of the shares of Sitan Instruments, with an investment income of 16.87 million yuan that year. Against the backdrop of the recession in the oil and gas industry, Sitan Instruments achieved an operating income of 229 million yuan and a net profit of 81.83 million yuan in 2016, with a 33% year-on-year increase in net profit. After deducting the investment income brought by asset disposal, the operating net profit of Sitan Instruments reached 52.16 million yuan. The company plans to use cash to acquire no less than 60% of the remaining shares. The 100 per cent stake in Sitan Instruments is proposed to be valued at 800m, valued at 2016 PE10 times, at a reasonable price. At the same time, Sitan Instruments has promised that the non-aftereffect profit deducted from 2017 to 2019 will be no less than 7000,7700 and 85 million yuan respectively, which will significantly increase the performance of the company.
The bottom of the oil and gas industry has stabilized, waiting for the arrival of a new cycle of oil prices: affected by the downturn in oil prices, the prosperity of the oil and gas industry has declined, but the bottom has stabilized. In the first quarter of 2017, the company achieved a 15.4% year-on-year increase in operating income and a substantial reduction in net profit. According to the company's performance forecast, revenue and operating profit in the first half of 2017 were the same as those in the same period in 2016, but due to the increase in fees, the net profit is expected to decline by 0% to 40% year-on-year. The company's business has formed the whole industry chain of oil and gas equipment, oil field services and oil and gas sales. In addition, there is also a layout in oil field environmental protection, which is expected to directly benefit from the rebound in oil prices in the future.
Profit forecast and investment rating: without considering the acquisition, the company's operating income for 2017-2019 is expected to be 301 million yuan, respectively, and the net profit attributable to shareholders of the listed company is 12-39-59 million yuan, respectively, and the EPS is 0.03 million yuan and 0.10 million yuan respectively. If the acquisition is completed, it will significantly increase the company's profits; considering that the oil and gas industry is expected to stabilize and rebound, maintaining the company's "buy" rating.
Risk tips: oil prices remain depressed, the recovery of the industry is not as good as expected risk; Sitan instrument performance is not as expected risk; cost risk.