Recent announcements
1. The company recently announced that its 2016 report achieved revenue of 934 million yuan, an increase of 70.7% over the previous year; profit before interest and tax (EBIT) of 161 million yuan, an increase of 44% over the previous year; net profit attributable to listed companies was 86.32 million yuan, an increase of 7.7% over the previous year.
2. In order to further expand overseas markets, the company plans to increase the capital of ETROL TECHNOLOGIES (USA) INC, a wholly-owned subsidiary, by 5 million US dollars in the form of its own capital. After this capital increase was completed, ETROL (USA)'s registered capital increased from 200,000 US dollars to 5.2 million US dollars.
Management analysis
1. The non-oil and gas business is growing rapidly, and the momentum is expected to continue. The company's non-oil and gas automated industrial IoT and smart industry division completed Yongkang Water Company's plant control equipment project, Shengfang Water Purification Plant and Water Distribution website project automatic control system project, and water plant automation project market expansion in 2016. In the smart industry, some companies are actively expanding fields such as grain storage, water, parks, environmental protection, and urban operations. The smart industry achieved a total revenue of 337 million, an increase of 637% over the previous year. On February 11, 2017, the company announced an investment of 120 million yuan as a limited partner to participate in the establishment of the Sichuan Smart City Development Equity Investment Center with a scale of no more than 300 million. Against the backdrop of drastic improvements in domestic infrastructure, the company's non-oil and gas industrial control and smart industries are expected to continue to experience high growth.
2. Oil and gas automation is hampered by low oil prices, and the high-end oil service business bucked the trend and will return to relatively rapid growth in 2017. Due to the decline in capital expenditure in the petroleum industry caused by low oil prices, the company's automation business achieved revenue of 248 million yuan in 2016, a year-on-year decrease of 32%. However, through the merger and acquisition of Zetian Shenghai and Sanda's new technology, the company bucked the trend and achieved rapid growth in the high-end oil service sector. The company's oil and gas service business includes geological and reservoir exploration services, oil and gas drilling development technology and engineering services, oil and gas production services, as well as R&D and manufacturing of software, hardware, and products related to oil and gas exploration and development, pollution control, etc., spanning many technical fields, and a significant part of the import substitution of products or services provided to foreign oil service giants. Oil Service achieved revenue of 345 million in 2016, an increase of 158% over the previous year. As oil prices pick up, CNPC and Sinopec plan to spend a total of 301.5 billion dollars in 2017, an increase of 21% over the previous year. It is expected that Security Control Technology's oil service and oil and gas automation business will also clearly benefit from this and return to a relatively rapid growth rate.
3. Financial pressure will ease somewhat. The company's profit before interest and tax (EBIT) increased by 44% in 2016, but net profit increased by only 7.7%. Excluding minority shareholders' equity, the 11 million increase in financial expenses was an important reason why the increase in net profit did not reflect the sharp growth in the company's business. Meanwhile, the company is building a smart industrial park in Hangzhou and plans to invest 270 million dollars. There is also financial pressure. To this end, the company completed the issuance of an additional 400 million yuan in financing in the second half of 2016, and completed the issuance of 300 million corporate bonds in that year. It will greatly ease the cash pressure brought about by the company's rapid growth and reduce financial expenses. Furthermore, with the increase in the share of non-oil and gas business, the turnover time of the company's accounts receivable declined somewhat; in addition to cash, commercial money orders with higher credit ratings were added by 66.63 million in current assets, all of which created conditions for further improvement in future cash flow and relief of financial pressure.
4. Outreach expansion is worth looking forward to: Security Control Technology completed equity incentives for executives in September 2015, and completed restricted stock incentives for middle and senior management groups and core employees in December 2016, unifying the company's internal and market demands. In 2017, the company stated in its annual report that it will actively explore new business growth models and expand new industry opportunities, take advantage of the advantages of listed companies, increase technological innovation efforts and accelerate the integration of upstream and downstream resources in the industrial chain through automation and information technology based on automation and information technology.
Profit adjustments and investment advice
We adjusted the company's profit forecast and expected to achieve net profit of 1.41,2.09270 million yuan in 2017-2019, corresponding to EPS 0.24, 0.35, 0.45 yuan. Corresponds to PE 35, 24, 18 times. Optimistic about its rapid growth on the two fronts of oil and gas and non-oil and gas, as well as expectations for industrial chain integration, to maintain “buying”
ratings.
Risk warning
Low oil prices caused investment in the oil and gas industry to fall short of expectations, and the expansion of the company's non-oil and gas business fell short of expectations.