We have made a three-dimensional analysis of Shenwu energy-saving annual report from four angles: profit, order, profit quality and profit expectation. The company accounts for a large proportion of overseas equipment sales projects in 2016, and the comprehensive net interest rate is as high as 38%. We expect the company's long-term net interest rate to reach more than 20% in steady state. Accounts receivable accounted for a relatively large proportion in 2016, and there has been a substantial refund in the first quarterly report in 2017. At present, there are plenty of orders on hand, and prepaid accounts reflect the signs of high growth, which is strongly recommended.
Income statement analysis: income increased by 32% and net profit increased by 95%. The sharp increase in net profit margin comes from the increase in gross profit margin, which is mainly due to the increase in the proportion of overseas and equipment sales items with high gross profit margin. In 2016, the company achieved operating income of 870 million yuan, an increase of 32% over the same period last year, and a net profit of 330 million yuan, an increase of 95% over the same period last year. Among them, revenue from overseas projects accounted for 74%, and equipment sales accounted for 57%. Superimposed by the two major factors of high gross profit margin of overseas and equipment sales business types, the income of 640 million overseas projects should have a high gross profit margin of 72.4%, which contributed to the substantial increase of the company's gross profit margin and net profit rate in 2016. In the future, the comprehensive gross profit margin of the company's EPC project is expected to be about 35%, and the corresponding net profit rate will reach 20%.
Order analysis: there are plenty of orders on hand, and the continuous promotion of stock projects will ensure the continued rapid growth from 2017 to 2018. At present, Shenwu Energy Saving has more than 10 billion on-hand orders, and it is expected that a large number of new orders will be realized in 2017 after the launch of the Jinchuan project in December 2016. Only from the existing stock projects, the normal progress will also ensure the company's rapid growth in 2017-2018. We expect that in 2017-2018, the company will achieve operating income of 3.146 billion yuan and 5.541 billion yuan respectively.
Cash flow analysis: the slow rebate of overseas projects in 2016 affected the cash flow situation in 2016, but most of the money was paid back in the first quarter of 2017, and the cash flow situation improved significantly; prepaid accounts increased significantly in 2016, revealing clues of high growth in the future. In 2016, the company's cash flow situation deteriorated, but it was mainly due to the relatively slow repayment of overseas projects. 87% of the company's 2016 accounts receivable were accounts receivable within one year, mainly from overseas projects (customer 1). Judging from the first quarterly report in 2017, a large amount of money has been paid back from overseas projects, accounts receivable has been reduced from 620 million yuan to 220 million yuan, and the cash flow situation has been greatly improved. In addition, the company's prepaid accounts reached 230 million yuan at the end of 2016 and 290 million yuan in the first quarter of 2017, a substantial increase from 20 million yuan in 2015. Prepaid accounts are mainly prepared for future project development and revenue recognition, so the substantial increase in prepaid accounts reveals the clues of the company's high growth in the future.
Business direction and profit forecast: Shenwu energy-saving production process can solve many world-class problems in low-grade ore smelting, slag utilization and so on. Estimated according to China's current consumption of crude steel, nickel, vanadium, titanium, chromium, iron and solid waste, China's clean smelting energy-saving technology has 3.2 trillion transformation market space; corresponding to the world, there is 6.4 trillion technology transformation space, long-term space is huge. From 2017 to 2018, we expect the company to achieve revenue of 3.146 billion yuan and 5.541 billion yuan respectively, and corresponding attributable net profit of 630 million yuan and 1.11 billion yuan, respectively. At present, we can give 2018 35 times PE valuation, corresponding to 38.9 billion market capitalization, corresponding to one-year target price of 60.99 yuan, maintaining the "highly recommended-A" rating.
Risk hint: the risk that the project schedule is lower than expected, market risk.
