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Author/Source: Panorama Network Date: 2009-4-1 -------------------------------------------------------------------------------- China has abundant coal but little oil; when oil prices are at $40, coal chemical industry enjoys sufficient profit margins. **The National Development and Reform Commission’s \"Medium- and Long-Term Development Plan for the Coal Chemical Industry\" specifies that between 2006 and 2020, China will invest over 1 trillion yuan in the coal chemical industry. Now, oil prices are rising again at an accelerated pace, and significant breakthroughs have been achieved in domestic coal-to-oil technology. Investment in the coal chemical industry amounting to 1 trillion will increase, presenting new investment opportunities for companies in this sector. Investors are advised to pay close attention to Shenma Industry, a stock whose net asset value per share is 6.15 yuan, representing a severe undervaluation. The merger of Pingmei and Shenma marks a major push into the coal chemical industry. Recently, there has been significant attention focused on the merger and restructuring of two major coal chemical enterprises in Henan Province – namely, Pingmei Group, which is the controlling shareholder of Pingmei Co., Ltd., and Shenma Group, the controlling shareholder of Shenma Industry. These two groups have combined to form Pingmei Shenma Group, which has been registered with the Henan Provincial Administration for Industry and Commerce; its registered capital amounts to 11.65 billion yuan. After the restructuring, Pingmei Shenma Group will undertake the main production tasks at the Central Plains Coal Chemical Industry Base, achieving the target of 6 million tons of coal-to-oil production per year. Clearly, Shenma Industrial will have significant opportunities for growth thanks to its technical advantages in the coal chemical industry. As a leader in the industry, it boasts advantages that set it ahead of competitors globally. Shenma Industry’s products are primarily used in areas such as conveyor belts, wires for airbags, aircraft tires, and parachutes. In terms of the production scale of cord fabrics, its market share ranks second in the world, only behind DuPont of the United States; its flagship products, namely nylon impregnated cord fabrics and nylon 66 industrial fibers, account for around 30% of the global market share ； The production scale of industrial silk has expanded to nearly 90,000 tons, ranking second in the world. The capacity expansion projects will boost production capacity, and performance growth is expected. In 2008, Shenma Industrial implemented projects to increase production capacity by 30,000 tons per year for polyester industrial yarn, 10,000 tons per year for nylon industrial yarn, and 30,000 tons per year through technological upgrades for polyester production. In addition, the construction of projects for 200,000 tons of caustic soda produced by the ion exchange membrane method and 200,000 tons of polyvinyl chloride resin is also accelerating. Shenma Bolemai’s production of airbag wires is also expanding at an accelerated pace. The total investment in these projects amounts to 695 million yuan, and they are expected to generate profits by 2009. The net asset value per share is 6.15 yuan; stocks with a net asset value below this level are significantly undervalued. The net asset value per share serves as the last line of defense for stock prices. In overseas stock markets, once a stock’s price falls below this net asset value threshold, it is very likely that there will be mergers and acquisitions or share repurchases by the company. Obviously, one buys stocks trading at a discount below their book value in order to reap the profits resulting from that discount. The 178 stocks with prices below their book value that emerged when the Shanghai Composite Index hit a new low of 1664 points saw over 90% of them outperform the market index by the time it rebounded to 2402 points ； At the same time, over 70% of stocks trading below their book value outperformed their respective industry indices. Investors are advised to pay attention to the few stocks in the two markets that currently have a book value lower than their market price. Among them, Shenma Industry has a net asset value of 6.15 yuan per share, with a reserve fund of 4.14 yuan per share; it also possesses a strong capacity for high-proportion stock dividends. In terms of stock price performance, this stock has recently shown an obvious upward trend, with its price rising above the 10-day moving average. Volume has nearly doubled over the past three trading days, and the candlestick pattern shows strong upward momentum; it is on the verge of testing previous highs, so this should be closely monitored.