Report summary:
Mengcao Ecology released its report for the first quarter of 2022, achieving operating income of 305 million yuan, an increase of 24.26% over the previous year, and Guimu's net profit of 103 million yuan, an increase of 197.35% over the previous year, after deducting net profit of 18 million yuan from non-Gimo, an increase of 972.63% over the previous year.
Comment:
Q1 performance increased year-on-year, and it's worth looking forward to throughout the year. The company's revenue increased 24.26% in 202Q1. The main reason was that revenue from final project reviews and newly started projects increased compared to the same period last year; performance increased 197.35% faster than revenue. The main reasons were: the cost rate for the period decreased 26.73 pct to 21.09%; the increase in debt restructuring income confirmed by the company and the decrease in investment losses of confirmed joint ventures compared to the previous year, and the net return on investment increased 7.05pct to -2.57%.
There was a decline in gross margin and a sharp drop in the cost ratio during the period. The gross margin of 2022Q1 company decreased by 8.24pct to 37.72%. The main reason was that the company completed more engineering work in 202Q1, while the same period last year was dominated by maintenance business, and the gross margin of the engineering construction business was far lower than that of maintenance business. The cost rate for the period was reduced by 26.73 pct to 21.09%. Among them, the sales, management, R&D, and financial expenses rates were reduced by 1.53 pct, 2.25 pct, 4.24 pct, and 18.71 pct to 2.66%, 8.65%, 4.9%, and 4.87%, respectively. The most obvious change in the financial expense ratio is due to the increasing number of PPP projects that have entered the operating period, and the corresponding confirmed financial expenses - interest income has increased.
The northwest ecological restoration market may remain high, and the company's market share is expected to increase. In terms of quantity, according to the “Construction Plan for Major Ecological Protection and Restoration Projects in the Northern Sand-proof Belt (2021-2035)”, demand for ecological restoration will remain high; judging from the price point of view, the increased difficulty of restoration will lead to an increase in the unit price of ecological restoration projects. Furthermore, as the difficulty of treatment increases, shrubs and herbs will increase the proportion of rehabilitated vegetation, which will help the company increase its market share.
Grassland carbon sink pioneers are expected to bring a second growth pole. The national carbon trading market has been opened, and grassland carbon sinks are expected to bring a second growth curve to the company. The company is a pioneer in this field. The foundation of early work, carbon sink plant resources, the accumulation of ecological restoration projects, and a good and stable government relationship will bring advantages to the company.
Give the company a “buy” rating, with a target price of 5.2 yuan. The company's EPS for 2022-2024 is expected to be 0.26/0.34/0.43 yuan.
Risk warning: Warmth and humidity in the northwest fall short of expectations; grassland carbon sinks fall short of expectations; competition in the grass seed industry intensifies