The performance was lower than expected

Evergreen Co., Ltd. announced 1H16 results: operating income was 497 million yuan, up 5.01% over the same period last year; net profit belonging to the parent company was 70.32 million yuan, down 18.75% from the same period last year, corresponding to 0.21 yuan per share. Balance sheet: the amount received in advance was 89.25 million yuan, down 38.80% from the same period last year, indicating a decrease in orders for equipment in hand. Income statement: financial expenses increased by about 22 million yuan compared with the same period last year, mainly due to the increase in interest costs caused by bank borrowing; R & D expenses were 43.86 million yuan, an increase of 40.84% over the same period last year, due to the increase in R & D investment in Germany. Cash flow statement: the net cash flow generated by investment activities is-51.31 million yuan. During the reporting period, the participating company received the dividend payment of your Union Holdings and the payment of construction agent.

Trend of development

Due to the weak domestic demand, printing equipment continues to be weak; through cooperation with Heidelberg, the international market is expanding rapidly. Sales of domestic stamping machines with high gross margins were relatively small in the first half of this year, resulting in a year-on-year increase in revenue of 5.44% to 255 million yuan, but the gross profit margin of the equipment business was only 32.39%, a sharp decline in 10.44ppt compared with the same period last year. It is expected that the overall gross profit margin will pick up in the second half of the year as the structure of export products improves and sales of stamping machines pick up.

Tobacco label printing declined slightly in the first half of the year and is expected to be flat for the whole year. Tobacco label printing in the first half of the year totaled 197 million yuan, down 9.39% from the same period last year; it is expected to be flat for the whole year.

Cloud printing is still the most imaginative bright spot in the business. The revenue of cloud printing business in the first half of the year was 30.05 million yuan, an increase of 41.95% over the same period last year, but the scale is relatively small. As a typical business model of "Internet +", it has a potential market space of 10 billion.

Profit forecast

We lowered our earnings per share forecasts for 2016 and 2017 by 21.95% and 27.41% from 0.66 yuan and 0.84 yuan to 0.51 yuan and 0.61 yuan, respectively.

Valuation and suggestion

At present, the company's share price is 32.9x and 27.9x, respectively, corresponding to the 17-year P-amp E in 2016. We maintained our recommended rating, but lowered our target price by 6.36% to 20.6 yuan, which is 21.61% higher than the current share price. Corresponding to 2016 pram E 40x, considering the broad prospect of cloud printing business, a certain valuation premium is given.

Risk.

Printing equipment continues to be in the doldrums, cloud printing progress is lower than expected.