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　　 Changjiang Securities Zhang Xiang

Description of the event.

December 12, 2012 Yahua Group It is announced that it is planned to use self raised funds to acquire the shareholders' equity of Luzhou Anxiang Civil Explosive Materials Co., Ltd. Yahua Group will purchase 45.36% of the equity of Anxiang Civil Explosive Materials Co., Ltd. This time, the company will pay no more than 37.2 million yuan. After this acquisition, the company will hold 51.36% of the equity of Anxiang Civil Explosive Materials Co., Ltd.

At the same time, Yahua Group announced that its holding subsidiary, Inner Mongolia Kodak Chemical Co., Ltd., planned to acquire no more than 75% of the equity of Baotou Zisheng Civil Explosive Equipment Co., Ltd. with its own capital, and the acquisition capital would not exceed 54.75 million yuan.

Event comments.

The acquisition thickened the company's annual EPS by 0.04 yuan: according to the announcement, the net profit of Zisheng Civil Explosive in 2012 is expected to reach about 12 million yuan, and that of Anxiang Civil Explosive in 2012 is expected to reach about 25 million yuan. Based on the company's total capital stock of 480 million yuan, the parent company's EPS can be thickened by 0.04 yuan.

The acquisition of Anxiang Civil Explosive is conducive to the integrated development of the company in Luzhou and its expansion to surrounding provinces and cities: Anxiang Civil Explosive is the only enterprise in Luzhou that has the qualification to sell civil explosives; And it has substantially controlled the strongest blasting company in southern Sichuan. This acquisition can realize the unified market of the group's products and blasting integrated services in this region, and expand to Chongqing, Guizhou, Yunnan and other provinces and cities. It has an important strategic position and good development potential.

The acquisition of Zisheng Civil Explosives is not only conducive to the integrated development of the company in Baotou area, but also conducive to the further integration of the company in Inner Mongolia: Zisheng Civil Explosives is the only enterprise in Baotou area, Inner Mongolia that has the qualification to sell civil explosives, with an average annual sales of about 20000 tons of explosives. After the acquisition, the company can integrate local production, sales, distribution and blasting businesses; At the same time, as Inner Mongolia is a national key development area, there is a gap between the supply and demand of explosives and the industry is relatively decentralized. After the company controls the circulation enterprises, it is also conducive to continue horizontal mergers and acquisitions in the region.

Investment suggestion: we predict that the company's earnings per share in 2012-2014 will be 0.45 yuan, 0.59 yuan and 0.71 yuan respectively, and the PE corresponding to the current share price will be 17.8 yuan, 13.8 yuan and 11.4 yuan respectively. We are optimistic about the company's ability of horizontal mergers and acquisitions in the industry and the huge potential of "integration" development, and maintain the "recommended" rating in the industry in-depth report.

Risk factors: the risk of continuous deterioration of the macro-economy; The risk that future acquisitions are lower than expected.

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