1H16 performance slightly exceeded expectations
Jiulian Development announced 1H16 results: operating income was 1.27 billion yuan, down 32.08% from the same period last year; net profit belonging to the parent company was 4.39 million yuan, down 95.2% from the same period last year, corresponding to earnings per share of 0.01 yuan. Slightly more than expected.
The decline in market demand for civil explosive products, price liberalization and intensified competition led to the decline in the price of the company's products. 1H16's revenue from civil explosive products was 517 million yuan, down 4.05% from the same period last year, and the gross profit margin decreased by 3.3ppt to 32.41% from the same period last year. Affected by the understart of infrastructure projects and the downturn in the mining industry, the blasting engineering business achieved revenue of 702 million yuan in the first half, down 44.51% from the same period last year. Administrative expenses increased by 8.23% compared with the same period last year, the expense rate increased by 7.5ppt to 24.2% year-on-year, and the company's profit growth was dragged down by a sharp drop in revenue and an increase in the rate of superimposed expenses. In the first half of the year, the payback of the company's engineering projects was good, and the net cash flow of operating activities became positive significantly, an increase of 490 million yuan over the same period last year.
Trend of development
The integration of civil explosive assets is worth looking forward to. Poly Jiulian Group promised to inject it into the company within 2 years after the completion of the integration of Panjiang Chemical Co., Ltd. at the same time, 100% stake in Poly Chemical Holdings and 70% stake in Shandong Yinguang Civil explosive equipment are expected to be injected into listed companies before 2020. Poly Minbao Technology Group 50.6% equity will also be injected into the company within 5 years after the resumption of production of Poly Minbao Jinan Technology Co., Ltd. At that time, the company's industrial explosive production capacity will reach 442500 tons. As the integration platform of civil explosive assets of Poly Jiulian Group, the company will further enhance the concentration of domestic civil explosive industry in the future.
Sign construction contracts for major construction projects. On July 19, 2016, Guizhou Xinlian blasting Engineering Group Co., Ltd., a wholly-owned subsidiary of the company, signed a contract for the construction of 12400 meters of urban road engineering with Zunyi New area Development and Investment Co., Ltd., with a contract amount of 840 million yuan and a construction period of 2 years. The signing of major construction contracts will help to improve the company's annual performance.
Profit forecast
The company expects 2016Q1~Q3 homing net profit to fall by 5090% year-on-year. Due to the more-than-expected decline in orders and the lower-than-expected injection of Panjiang Chemical, we lowered our earnings per share forecasts for 2016 and 2017 by 73.85% and 57.74% from 0.33 yuan and 0.43 yuan to 0.09 yuan and 0.18 yuan, respectively.
Valuation and suggestion
At present, the company's shares correspond to the 17-year price-to-earnings ratio of 2016 Compact at 193x/91x. Due to the expectation of the asset injection company of Poly Group in the next five years, we maintain a neutral rating and a target price of 16.5 yuan, which is 0.6% lower than the current share price.
Risk.
The price of the product continued to decline, and the order for the blasting project was lower than expected.
