Main points of the report

Event description

Pegasus International reported in 2014 that the company achieved 14.635 billion yuan in operating income in the first half of the year, an increase of 47.73 percent over the same period last year, a year-on-year drop of 0.44 percent to 0.62 percent, and a net profit of 88.78 million yuan belonging to the parent company, an increase of 48.55 percent over the same period last year, with an EPS of 0.22 yuan. Of this total, revenue in the second quarter was 8.077 billion yuan, an increase of 86.62 percent over the same period last year, and the gross profit margin decreased 0.37 percent to 0.44 percent year on year. The net profit belonging to the parent company was 40.42 million yuan, and the EPS was 0.1 yuan.

Event comment

Revenue continues to grow rapidly, the main business profits are meagre, and foreign exchange business profits increase. The company's operating income growth improved in the second quarter compared with the previous quarter, and revenue increased by 87% year-on-year after a growth rate of less than 18% in the first quarter, bringing revenue growth back to 48% in the first half of the year. Among them, the traditional mineral trade implementation business volume of companies in South China resumed in the first half of the year, and revenue in the region increased by 34.5% compared with the same period last year. However, in view of the increase in the proportion of supply chain business in the resources industry with low gross profit margin, the company's gross profit margin fell 0.37 percentage points year-on-year to 0.44%, achieving a gross profit of 35.44 million yuan. However, second-quarter net profit rose 55 per cent year-on-year to 40.42 million, mainly from the DF/NDF exchange rate arbitrage business in the company's entrepot trade in the second quarter, resulting in financial charges, fair value changes and net investment income, which increased by 28.15 million to 30.6 million over the same period last year, contributing 76 per cent of net profit.

With the continued development of the traditional market, the concentration of customers has decreased slightly. The company's main customers are still concentrated in power plants and iron and steel plants in South China, as well as copper and aluminum demand in East China. In terms of growth rate, the company's traditional customer revenue growth remains in the lead. In the first half of the year, sales in South China increased by 345% compared with the same period last year, far higher than the national average of 48%, while non-core sales regions such as Central China and North China declined by more than 70%. In terms of sales, East and South China are still the company's main markets, accounting for 80% of the company's domestic market revenue. At the same time, the company's customer concentration continues to decline, with the top five customers accounting for 22.55% of operating income, compared with 44.22% in the same period last year.

We expect the company's EPS from 2014 to 2016 to be 0.36,0.40 and 0.44 yuan respectively, maintaining a "cautious recommendation" rating.