The technology was recognized by the market, the project continued to advance, and the annual report showed high growth: according to the company's annual report in 2016, the company's operating income was 865 million yuan, an increase of 32.14% over the same period last year; the net profit was 333 million yuan, an increase of 94.47% over the same period last year; and the net profit after deducting non-return was 327 million yuan, an increase of 107.8% over the same period last year. The company carried out a major asset restructuring in 2016, and the company bought 100% equity in Jiangsu Institute, which became a wholly-owned subsidiary of the company. The company deducted 344 million yuan in non-parent net profit in 2016, exceeding the promised performance in 2016 (300 million yuan). The reasons for the substantial increase in performance are as follows: (1) the Jiangsu hospital stock project continues to advance, resulting in performance release; (2) the company's three major direct reduction clean smelting innovation technologies continue to be recognized by the market, bringing sales revenue growth.
The gross profit margin has increased significantly and has strong profitability: the company's gross profit margin reached 61.95% in 2016, an increase of 73.24% over the 2016 level. the reasons are: (1) the operating cost of the company's engineering general contracting business decreased by 64.12% compared with the same period last year; (2) the combined revenue of equipment sales (gross profit margin 70.51%) and engineering consulting design (gross profit margin 76.36%) with high gross profit margin accounted for 78.93%. The company's sales expense rate and financial expense rate remained stable, and the management expense rate increased by nearly 5% year-on-year to 11.99%. The reason: with the increase of the company's business volume, the corresponding number of personnel and salary increased; the company increased its R & D investment. R & D investment increased by 132% year-on-year, accounting for 2.47%; in addition, major asset restructuring intermediary fees and new office building rental fees were generated in 2016. The management fee of the company in 2016 was 104 million yuan, an increase of 125.83% over the same period last year.
The quarterly results were eye-catching, and the cash flow improved significantly: according to the company's quarterly report, the company achieved operating income of 150 million yuan, an increase of 0.76% over the same period last year; net profit of 73.1398 million yuan, an increase of 68.32%; and net profit of 74.1181 million yuan, an increase of 83.84% over the same period last year. The company's performance is eye-catching, the stock project continues to advance, the technology is recognized by the market, and the performance continues to release. According to the company's 2016 annual report, by the end of 2016, the company's largest customer accounts receivable had not been settled at 512 million yuan, and the company's accounts receivable was 625 million yuan, an increase of 32.84% over the same period last year. The company's net operating cash flow in 2016 was-104 million yuan, down 122.60% from the same period last year. In the first quarter of 2017, the Dahe project received 493 million yuan in accounts receivable, and the company's net operating cash flow was 321 million yuan, an increase of 4853% over the same period last year, and the cash flow improved significantly.
The commissioning of advanced technology projects will bring demonstration effects, sufficient orders on hand, and thickening future performance:
The first phase of the Jinchuan project was completed and put into production in December 2016, which is the first comprehensive utilization of copper tailings in the world, and its commissioning marks the substantial landing of the direct reduction clean smelting technology of Shenwu regenerative rotary hearth furnace (SRF), which brings demonstration effect for the company. The company's core technologies include regenerative rotary hearth furnace, hydrogen shaft furnace, etc. "Regenerative rotary hearth furnace treatment of copper, nickel slag recovery of iron, zinc complete sets of technology and equipment industrialization" has been identified by China Nonferrous Metals Industry Association to reach the international leading level. Relying on the core technology, the company has more than 10 billion orders on hand to ensure the high growth of the company's future performance.
According to the company's announcement, the company's main orders-on-hand include Jinchuan Phase II (Nickel Slag Project, 801 million), Shandong Nickel Project (2.609 billion yuan), Shanxi Meijin Project (830 million yuan), Zhongjin Taihang Project (334 million yuan), Hechi South Project (350 million yuan), Indonesia SOLWAY Project (US $293 million), Dahe Project (US $565 million) and so on.
Investment suggestion: with the promotion of supply-side reform in downstream iron and steel, non-ferrous and other industries and the introduction of environmental protection tax, the prosperity of mass solid waste utilization is expected to continue to improve. We are optimistic that the promotion of the company's stock project will bring performance release, and the company's advanced solid waste utilization technology will continue to be recognized by the market, laying a solid foundation for obtaining orders in the future. The growth of the company is outstanding. Shenwu Group promises that the net profit deducted from non-return from 2017 to 2018 is not less than 400 million yuan and 500 million yuan respectively. We estimate that the company's EPS for 2017-2019 is 0.97,1.67,2.53 yuan, corresponding to PE 40.5X, 23.5X, 15.5X, maintaining the "buy-A" rating, with a six-month target price of 47 yuan.
Risk Tip: commodity prices fluctuate and project progress falls short of expectations.
