Xinjiang Tianye (600075) reorganization Tianneng Chemical Co., Ltd.

The company announces the plan of "merger and acquisition of 450,000 tons of PVC and related integrated assets of Tianneng Chemical Industry Group", speeding up the national reform and optimizing the industrial structure. We are optimistic about the company's long-term development as a local high-quality national tender reform, and actively recommend it.

The company will load 450,000 tons of high-quality PVC production capacity into the group. In this announcement, the company will purchase 100% shares of Tianneng chemical from Tianye Group and Jinfu through issuing shares, convertible bonds and paying cash. Tianneng Chemicals 100% equity valuation value is 4.839 billion yuan (that is, the overall value and the transaction price).

Accumulative performance commitment of non-returning mothers in the next three years is $1.572 billion in 2019-2021 or $1.590 billion in 2020-2022 (depending on the time of reorganization), and the corresponding valuation multiple is 9 times. The actual performance is likely to be better, Tianneng's net return from home in 2017/2018 is 842/877 million yuan, while the price of PVC and caustic soda is under pressure in 2019. Under such circumstances, the net return from home in January to May 2019 is still 265 million yuan. Once the price rises, Tianneng's performance is expected to increase significantly.

Equity is expected to increase by 965 million shares. The payment for Tianneng Chemical Company is to be made by issuing shares, converting bonds and cash, including: 1. 387 million shares (price 594 yuan per share, locked up for three years); 2. 3 million converted bonds (initial converted share price 594 yuan, corresponding to 551 million shares); 2. 2 billion yuan raised, assuming that the closing price was 90% (i.e. 417 yuan per share) yesterday, corresponding to 528 million shares. The company's current equity is 973 million shares, with an estimated post-issuance equity of 1.938 billion (assuming that all converted bonds are converted into shares), corresponding to the closing price of 463 yuan/stock market value of 9 billion yuan on October 8.

The company strips off the non-main assets according to the strategy, and continuously optimizes the industrial structure. Prior to this, the company continued to push forward the reform according to the strategy: 1) in December 2018, through the Shihezi Tianye Tomato Products Co., Ltd. 62.967% equity transfer program; 2) February 2019, the company publicly pre-listed transfer of Beijing Tianye Oasis Technology Development Co., Ltd. 100% equity, Jinghe County Xinshi Transportation Co., Ltd. 100% equity. The above three companies have completed the audit and evaluation work and are going to be listed formally. The company plans to speed up the process of divestiture of non-main and loss-making assets, enhance the ability and competitiveness to deal with market risks in accordance with the requirements of the reform of state-owned state-owned enterprises, lay a solid foundation for reform, and focus on the development of major industries of chemical industry and new materials.

Ethylene glycol project is advancing rapidly, and it is expected to increase its performance significantly after delivery. The company and the group set up a joint venture Tianye convergence, to undertake the group's million tons of ethylene glycol phase I 600,000 tons of projects. At present, the core reactor production capacity, the scale of single production line and the product quality are all in the leading level at home and abroad. The large-scale, intensive and large-scale competitive advantages of the plant will be fully reflected. After completion, sales revenue is expected to reach 4.2 billion yuan annually, profit is 84 billion yuan annually, and performance will be greatly enhanced.

Investment Suggestions: The company should accelerate the national reform and optimize the industrial structure. Looking forward to the company's long-term development, maintain the company's EPS forecast for 2019/20/21 is 0.54/0.68/0.84 yuan/share, give the target price of 11 yuan (corresponding to 20 times of 2019), maintain the "buy" rating.