Main points of investment
Event: Jiangnan Water released its semi-annual report for 2017. the company achieved revenue of 589 million yuan in the first half of the year, a slight increase of 2.6 percent over the same period last year, and a net profit of 153 million yuan belonging to shareholders of listed companies, down 10.76 percent from the same period last year. In this regard, the comments are as follows:
The decline in net profit compared with the same period last year was mainly due to higher business costs of water supply and engineering. In the first half of the year, the company achieved revenue of 589 million yuan, a slight increase of 2.6% over the same period last year, and the net profit belonging to shareholders of listed companies was 153 million yuan, down 10.76% from the same period last year. The main reasons for the change in profits: 1) tap water business: the company's water sales decreased by 1.34% compared with the same period last year, and the revenue from tap water business decreased by 0.02% compared with the same period last year; the cost of the main business increased by 3.85% year-on-year (the growth mainly came from depreciation, consumption of raw materials and materials, wages of employees, etc.), resulting in a 2% decline in gross profit margin. Due to the increase in depreciation expenses after the company's office building was put into operation. Net profit of tap water business decreased 20.41% compared with the same period last year. 2) Engineering installation business: the revenue of external engineering installation increased by 3.88% year-on-year, while the cost side increased by 22.58%, resulting in a 7.8% decline in business gross profit margin. 3) sewage treatment business: Hengtong Company, the company's sewage treatment subsidiary, adjusted the price of sewage treatment in April 2017. the revenue and cost of sewage treatment increased by 17.97% and 1.8% respectively over the same period last year, and the net profit of sewage business increased by 1.7481 million yuan over the same period last year. The impact of a small base on the whole is relatively limited.
Cost analysis: due to depreciation and labor costs increased, the overall stability of management expenses. In the first half of the year, the company incurred sales expenses of 35.66 million yuan, an increase of 2.7% over the same period last year; management expenses of 52.23 million yuan, an increase of 17% over the same period last year; the increase in management expenses was mainly due to the increase in depreciation expenses and the salary of employees; and the financial expenses were-8.5 million yuan, which remained stable compared with the same period last year. On the whole, the company's cost control remains stable.
Investment advice: maintain the overweight rating. We expect the company to be attributable to the parent owner's net profit of 439 million, 4.95 and 570 million from 2017 to 2019, with a current market capitalization of 6.1 billion, with a corresponding valuation of 14, 12 and 11 times. The overall operation of the company is stable, with 1.4 billion yuan in cash on hand, and sufficient cash can guarantee the subsequent expansion. Based on this, maintain the overweight rating!
Risk Tip: order confirmation lag
