Description of the event
The company published its 2016 three-quarter report.
Incident comments
Higher revenue and lower profits, and on-hand orders brought improved expectations. Chengdu Road and Bridge achieved operating income of 1,393 million yuan in the first three quarters of 2016, an increase of 50.10% over the previous year, and achieved net profit attributable to shareholders of 16 million yuan, a year-on-year decrease of 39.07% and EPS of 0.02 yuan. The decline in profit was mainly dragged down by a sharp increase in costs in the third quarter. Due to the increase in engineering orders, the company is expected to achieve a slight profit this year as construction of projects that have already won bids progresses one after another. The company forecasts net profit of 24 to 34 million yuan in 2016, an increase of 30% to 80% over the previous year, and an annual EPS of 0.03 to 0.05 yuan.
Profitability has declined sharply, and operating cash flow has stabilized. The company's gross profit margin for the first three quarters of 2016 was 2.15%, a year-on-year decline of 10.32 pct, mainly due to the audit cuts of some project owners and the overall rise in raw materials this year; the net interest rate was 1.18%, a year-on-year decline of 1.72 pct. The period fee rate was 5.22%, down 3.29pct from the previous year. The decline in financial expenses was the main reason for the decline in period expenses. The financial expense ratio fell 3.29pct to 2.16% year on year, mainly due to a decrease in bank loans and a decrease in interest expenses after the return of earlier trust products. Repayments for this phase of the project were relatively good. Security deposit recovery etc. increased compared to the previous period, resulting in operating cash flow of 485 million yuan, an increase of 344 million yuan over 141 million yuan in the same period last year.
The company achieved operating income of 5.17, 3.72, 613 and 408 million yuan respectively in Q4 last year and Q1, Q2 and 408 million yuan respectively, up 46.66%, 99.46%, 82.20% and 0.73%, respectively; it achieved net profit attributable to shareholders of listed companies -0.08, 0.09, 0.05, 0.02 billion yuan, up -129.68%, 21.54%, 42.07%, and -86.68% respectively. The company's revenue performance has declined sharply since 2014. Although this year's revenue has improved compared to 2015, it is still in a low position since listing.
The main business is influenced by the environment and company strategy, and we expect order volume to improve performance. The company's annual performance has declined sharply since 2014, mainly affected by the low macroeconomic environment and the company's appropriate strengthening of risk control. The number of successful bids and insufficient project reserves have led to a sharp decline in the company's operating scale in recent years. Therefore, the decline in the company's performance in recent years is the result of a combination of changes in the macro environment and the company's adjustment of business strategies.
The current decline in real estate investment has led to strengthened infrastructure expectations. In particular, urbanization in the southwest region is at a low level compared to the eastern and central regions. There is still plenty of room for future infrastructure investment. The company's main business is concentrated in Sichuan Province, which has a great location advantage, and as one of the few well-qualified road and bridge enterprises in the province, the company is expected to fully benefit from future infrastructure investment. The number of orders placed by the company has picked up a bit this year. The company won about 4 billion yuan in the first half of the year, announced that it would take orders for Dazhou's 2,433 billion yuan PPP project in the second half of the year, and signed an intended contract with Yibin City for the comprehensive development of the Yangtze River Ecological and Cultural Tourism Industry in Nanxi District. In the future, the company's main business will benefit from the promotion of PPP, especially regional PPP. The Chengdu Municipal Development and Reform Commission's first batch of PPP projects in 2016 totaled 39, totaling 126.0.2 billion yuan. Of these, there were 19 municipal projects with a total investment of 60.39 billion yuan, which is expected to bring PPP orders to the company. With the development of the company's PPP business and the commencement of the project, revenue is expected to continue to increase in the future.
Implement refined management and actively explore markets outside the province: the company implemented a precise management system, focusing on strengthening the management and supervision of key departments and key positions. In particular, precise management based on reshaping the functions of branches and subsidiaries achieved good results, and the company's management expenses ratio improved markedly. Furthermore, the company actively exploited markets outside the province and won project bids in Tibet, Jilin and other places to enter the local market. It is expected that in the future, the company will continue to develop business outside the province, especially in the Tibetan region, increase the proportion of the company's business outside the province, and enhance the company's operating flexibility.
Investment advice: The company's 2016-2018 EPS is predicted to be 0.04/0.18/0.21 yuan, corresponding to the 2016-2018 PE of 198/45/38 times, respectively.
Risk warning: economic fluctuations, downside investment risks, PPP development and business development risks, etc.