Main points of investment
Zhongcheng shares: neglected international engineering enterprises. Zhongcheng shares were initiated and established by Zhongcheng Group and were listed in 2000. The company's main business includes the export of complete sets of equipment and foreign contracted projects, general trade and overseas operations; international project contracting business is the company's core business, accounting for 86.62% of the total income. The major shareholder of the company is Zhongcheng Group, and the actual controller is CIC Group, with a shareholding ratio of 45.80%.
Orders doubled in 16 years compared with the same period last year, and there are plenty of orders on hand. Benefiting from the landing of the "Belt and Road Initiative" strategy, new major contracts signed in 2016 totaled 4.749 billion yuan, an increase of 118.85 percent over the same period last year. The company's current outstanding orders reached 12.371 billion yuan, 10.21 times the 2015 revenue.
Taking into account multiple positive factors, we believe that the net profit of the company's Q4 will increase significantly compared with the same period last year.
The Ethiopian sugar plant project will be completed and delivered by the end of 2016, and Q4 is expected to focus on revenue recognition; Q3 advance increased by 551 million yuan in 2016, and Q4 revenue growth is expected to increase significantly; 2015Q4 suffered a 14.55 million asset impairment loss, combined with the exchange gains brought by the devaluation of 2016Q4 RMB and the reduction of tax rates, the company's Q4 performance will have a significant increase compared with the same period last year.
The acceleration of orders is expected, and revenue is expected to enter the growth track. It is expected that with the convening of the Belt and Road Initiative Summit Forum, the company's major contracts with Chinese loans will take effect faster; and, the number of self-financed projects is increasing and taking effect quickly, which is expected to drive revenue into the growth track.
The Group strongly supports the superimposed reform of state-owned enterprises and has huge room for growth. As the core enterprise of the international business of CIC Group, the company is expected to rely on CIC Group to actively layout the "Belt and Road Initiative" market in the future. Zhongcheng Group has promised to launch an equity incentive program, which is expected to have a positive impact on the company's future performance.
Earnings forecast and rating: the company's EPS from 2016 to 2018 is expected to be 0.56,0.75,0.90 yuan respectively, and the corresponding PE is 34.8,26.2 and 21.7 times respectively.
Risk hint: the order effective progress is not as expected, the order construction progress is not as expected, and the exchange rate fluctuation risk