Report summary:
Incident: Agricultural products released their 2016 annual report. The company achieved operating income of 2,020 million yuan, an increase of 1632% over the previous year. Net profit attributable to shareholders of listed companies was 884.5595 million yuan, an increase of 330.35% over the previous year. The corresponding EPS was 0.0521 yuan, an increase of 330.58% over the previous year.
Comment:
The business expansion of the Shenzhen Starlink subsidiary led to a significant increase in the company's revenue. The company achieved revenue of 2,020 billion yuan in 2016, an increase of 16.32% over the previous year, mainly due to the expansion of the trade business of its subsidiary Shenzhen Starlink Company, which led to a sharp increase in the company's market supporting service revenue. The company's market supporting services business achieved revenue of 324 million yuan in 2016, an increase of 531.48% over the previous year. The revenue share increased to 16.04% from 2.95% in 2015.
The transfer of 100% of the shares of the building company achieved investment income of 268 million yuan to offset the negative impact of the sharp decline in gross margin, and the company's net profit increased dramatically. The company achieved net profit of 884.59,500 yuan in 2016, an increase of 330% over the previous year, mainly because the company concentrated resources to expand and strengthen its main business and completed the transfer of 100% of the shares of the building company in 2016. The impact of this incident on the company's total profit in 2016 was 268.4 million yuan. The company's business development changes in 2016 led to a sharp increase in the company's short-term operating costs and a sharp decline in gross margin (2015/2016 gross margin was 48.56%/34.92%, respectively). The sharp decline in gross margin and the increase in investment costs for starting new projects led to a 142% year-on-year decline in the company's net profit after deduction (-165 million yuan in 2016).
During the “13th Five-Year Plan Period” the company will continue to promote “building a world-class agricultural product distribution network”
Strategy. 2016 was the beginning of the company's “13th Five-Year Plan”. During the reporting period, the company vigorously expanded the Haijixing brand. Huangxing Haijixing in Tianjin, Wuhan and Changsha successfully opened Haijixing after Shenzhen and Tianjin Haijixing; the company's 14 agricultural product wholesale markets uniformly set up e-commerce centers, and the “Big Cabbage+” app was launched in the same period.
Investment advice: Considering that the value of the company's online and offline integrated agricultural product distribution network is gradually emerging, and that the reform of state-owned enterprises can be expected under Shenzhen State-owned Assets Holdings, we expect the company's EPS to be 0.03 yuan, 0.05 yuan and 0.06 yuan respectively, and the corresponding PE is 311x/225x/166x respectively, giving an “increase in holdings” investment rating.
Risk warning: Project expansion results fell short of expectations, and state-owned enterprise reform progressed slowly.