Event: the company achieved operating income of 1.371 billion yuan in 2016, an increase of 2.02% over the same period last year. The net profit attributed to the parent company was 184 million yuan, an increase of 11.04% over the same period last year. The net profit after deducting non-profit was 161 million yuan, an increase of 48.55% compared with the same period last year.
Comments:
The company is mainly engaged in catering services, animal husbandry, and in recent years into the field of funeral services. In 2016, the company's livestock breeding and funeral services business was the main source of revenue growth. Among them, the annual contribution income of animal husbandry business exceeded 800 million, and the sales revenue of live beef, mutton and deeply processed meat products increased by about 20%. The company invested an additional A $7.0538 million in wholly-owned subsidiary Fucheng Australia, acquired Greenbury and Lumin farms, and purchased 9309 new high-quality beef cattle. As the import cost of Australian cattle is actually lower than the domestic purchase and breeding cost, the company's livestock breeding profitability is expected to continue to enhance. At the same time, through Fucheng Hehui M & An industrial fund for extension expansion, the company acquired 60% equity in Longye Cemetery in Yixing, Jiangsu Province and Qianjiang Mausoleum in Hangzhou, so as to further expand the territory of the funeral industry. In the whole year, the company added 504 graveyards and sold 3266 tombs, achieving revenue of 197 million, an increase of 20.18% over the previous year, and a gross profit margin of 84.84%. The company's catering service revenue fell by 17.57%, mainly due to the termination of operations in 15 stores. In addition, the company plans to gradually divest the dairy business, and Yanjiao Dairy Branch has been sold for 160 million yuan in 2016. it is expected that the divestiture of redundant business with low gross profit margin will help the company to develop steadily in the long term.
Business structure optimization, funeral service is the main growth point in the future:
The company acquires high-quality pastures and retains high-profit catering stores, constantly develops the profit space of the enterprise, and makes full use of the synergistic and complementary effect of upstream and downstream businesses of the beef cattle industry to provide the company with long-term stable profits. In terms of the funeral industry, the number of burials in cemeteries in China currently accounts for less than 20% of the total number of cremation, and the aging level in China is expected to increase to 17.17% in 2020, with 248 million people over 60 years old. There is great potential for the development of the funeral service industry. And our country has the tradition of filial piety culture, the bargaining desire of graveyard buyers is generally low, and the gross profit margin of funeral services is very high, which is expected to become the main focus of the company's profit growth.
Target price 16.50 yuan, maintain the "overweight" rating: it is estimated that the company's EPS will be 0.26,0.30,0.36 yuan respectively in 2017-2019, and the target price will be 16.50 yuan.
Risk Tips:
The catering service business has contracted excessively, and the development speed of the funeral industry is not as fast as expected.