Company Profile

Jincheng Paper Co., Ltd. manufactures and markets paper pulp, machine-made paper, paper board,and adhesives. The Company also provides steam and electricity generation.(Source: Bloomberg)

Event

Jiangsu Province Metallurgical Design Institute Co., Ltd, a subsidiary of Beijing Shenwu Environment &Energy Technology Co., Ltd, will have back door listing by restructuring with Jincheng Paper. Thisrestructure scheme has obtained CSRC’s permission.

Comments

Jiangsu Province Metallurgical Design Institute is a construction contractor and solution supplier ofindustrial energy-saving and comprehensive utilization of resources. It also has the earliest establishedbrand and benign asset among Shenwu Environment & Energy Technology’s subsidiaries. Its coretechnological expertise has been successfully applied to fields like steel, non-ferrous metal andmineral resources.

Jincheng Paper reported revenue and net profit at CNY 655 million and 171 million in 2015, it pledgesto register revenue of 300/400/500 million for year 2016/2017/2018. It total equity is worth of CNY3.46 billion and the acquisition price will be 11.5x of its current value. Its orders in hands are worth ofover 10 billion RMB, its business model innovation will also accelerate company’s growth.Company’s key technologies have been tested and acknowledged by the Chinese Society for Metals.Company’s advanced technology has been successfully applied to practice and been proved to besuperior in both economic perspective and environment-protection perspective:

Jiangsu Shagang Co., Ltd's comprehensive treatment of dust & resource recycle by saving 1.4Mn metric tons of coal and cutting down CO2 emmission by 3.67 Mn metric ton per year. Theinitial required investment of this program is CNY 200 million, which will generate an annualrevenue of about CNY 114 million.

Jiangsu Province Metallurgical Design Institute currently has 6 EPSC programs in domesticmarket (worth CNY 5.57 billion) and 2 EPC programs in oversea markets (worth CNY 858million).The current business model of Jiangsu Province Metallurgical Design Institute is mainly EPC. Afterback door listing, the company will enhance its funding ability and deploy new business models likeEMC and BOT. Its key technological advantage shall be applied to widening areas, acceleratingcompany’s growth.

After this transaction, Beijing Shenwu will become the company’s largest shareholder by holding54.83% of it. Jiangsu Province Metallurgical Design Institute, as Beijing Shenwu’s unique listedcompany in China’s main board market, will work as a crucial financing platform of the whole corp.Recommendation: we maintain “Outperform” rating for Jincheng Paper. According to company’smarket value of CNY 12.6 billion and diluted 672 million shares outstanding, company’s estimated P/Eratios (diluted) for year 2016/2017 are 42x/31x.

Potential risk: unexpected drop-off in metal’s price or programs progressed slower-than-expected.