Main points of investment:
The consolidated statements do not reflect the true status and profitability of the placed assets. In terms of income statement, the company achieved operating income of 5.515 billion yuan in the first three quarters, down 7.79% from the same period last year, mainly because the operating income of Beijing foodstuffs in the same period last year included 1.997 billion yuan from 14 trading enterprises that were transferred on May 31, 2016. Excluding this factor, sales revenue from January to September this year increased by 1.53 billion yuan compared with the same period last year, an increase of 38.46%.
The net profit belonging to shareholders of listed companies was 114 million yuan, an increase of 60.02%, and the net profit after deducting non-return increased by 116.35% (it was previously estimated that Beijing Grain shares achieved a net profit of 196 million yuan during the transition period from June 1, 2016 to July 31, 2017). Business tax and surcharge increased by 97.25% compared with the same period last year, mainly due to the adjustment of the tax originally calculated in the subject of "administrative expenses" to "business tax and surcharge" in accordance with the latest regulations.
Subject accounting.
In terms of balance sheet, total assets were 5.007 billion yuan, down 5.19%; net assets were 2.032 billion yuan, down 17.32%, due to the purchase of major asset restructuring assets. Accounts receivable increased by 120 million yuan and 143.50% over the beginning of the year, due to the development of new strategic customers in the southern market, and all the above receivables had been recovered by October 19; prepaid accounts increased by 250 million and 187.2% over the beginning of the year, mainly because the two ships of soybeans purchased by Tianjin Oil Plant for production arrived in Hong Kong at the end of September, and all of them had been stored and started processing and sales by the end of October. Short-term loans totaled 1.388 billion yuan, up 2113.90 percent from the beginning of the year, mainly due to the oil business sector concentrated procurement of goods needed in the second half of the year to increase procurement funds according to the needs of production and operation and market conditions, while long-term loans decreased by 100 percent compared with the beginning of the year. mainly due to the repayment of long-term bank loans in advance of the current period.
In terms of cash flow statement: the net cash flow generated by operating activities was-1.071 billion yuan, a decrease of-278.96% compared with the same period last year, mainly due to increased procurement capital expenditure by concentrated procurement of goods needed in the second half of the year; net cash flow from investment activities increased by 52.42% over the same period last year, due to the further acquisition of 19% equity interest in Little Prince in this period. The net cash flow generated by fund-raising activities increased by 250.43% over the same period last year, due to an increase in bank borrowing for centralized procurement in the second half of the year.
The adjustment of business scope shows the "big food" layout of the company in the future. The company recently announced that its business scope has been revised to: production and sales of prepackaged food, beverages, oils, oilseeds and their by-products, plant proteins and their products, soil remediation agents, soil conditioners, organic fertilizers, microbial fertilizers, land restoration, soil remediation, agricultural planting, breeding, sales of agricultural equipment, seed production and so on. Our previous report pointed out that compared with Cofco, which has a number of listed companies in An and H cities, Beijing Food Group currently has only one listed company in Pearl River Holdings. Therefore, Pearl River Holdings is likely to undertake more asset securitization of Beijing Food Group and become the most important asset integration platform of the Group. In addition, both Beijing Grain Group and Beijing Grain shares have clearly put forward the extension expansion strategy in the 13th five-year Plan. In 2016, the revenue of Beijing Cereal Group was 28.6 billion yuan, up 17.6 percent from the same period last year, and its profit was 1.005 billion yuan, up 97.4 percent from the same period last year. It was among the top 500 Chinese enterprises for the first time, and its comprehensive strength ranked among the top two domestic grain enterprises. In the future, the Group will undertake policy protection functions such as "ensuring supply and stabilizing grain prices", and listed companies will focus on improving the profitability of the main business.
With the help of Beijing Grain Group Pearl River Holdings has four major competitive advantages. First, policy advantages. Beijing Grain Group is the only executive body of macro-control of Beijing grain and oil market, and it is also the grain and oil enterprise with the strongest policy and best policy in the economic belt of Beijing-Tianjin-Hebei (including Xiongan New area). The second is the advantage of industrial chain. Beijing Grain Group has formed a relatively complete industrial system around grain planting, procurement, warehousing, logistics, processing, sales and other links, which can share resources with listed companies. The third is the brand advantage. The group owns "Ancient ship", "Green Treasure", "Firebird" and "Ancient Coin".
And many other well-known brands, ancient ship flour has won the first place in the country's comprehensive retail market share for seven years in a row, and the latest brand value has reached 9.268 billion yuan. Fourth, the advantage of science and technology. The Group has set up Beijing Grain Science Research Institute.
Grain and oil business has great profit potential to be tapped. In the past three years, Beijing Cereal shares have successively adjusted their industrial structure and product structure: transferring 14 trading companies with low profit margins, which are responsible for security functions, to Beijing Food Group; acquiring profitable subsidiaries of Zhejiang Xiaowang; and upgrading the product structure of oil business to deep processing, small varieties and multi-varieties. It is expected that as the increase in the production of small varieties of oil leads to the improvement of the company's capacity utilization (there are obvious economies of scale in the vegetable oil processing industry), the company's gross profit margin is expected to rise to 10%.
In addition, the company also has great potential in regional expansion, just from the Beijing market to Tianjin, Hebei revenue is expected to double, and may even expand to the north and even the national market, profit sustained rapid growth is expected.
The little prince made a strong profit, and the United States bought shares in the ancient boat bread primer. Zhejiang Little Prince Snack Food Company, acquired by Beijing Food Co., Ltd. in 2015, is the first case of extension expansion of Beijing Food Co., Ltd., and its stake in further acquisitions has recently risen to 70%. The company's revenue in 2016 was 731 million yuan, up 26.3 percent from the same period last year, and its net profit was 89.56 million yuan, up 26.43 percent. We believe that the extension expansion of Beijing Grain shares can still be expected. Recently, the company announced that its subsidiary, Guyuanbao, had introduced Wumart Group to participate in the shares. Wumart Group gives full play to the advantages of terminal retail channels, making Gushan Bread a platform for the production and processing of baked products of Wumart Group, and its products have fully entered 350 stores of Wumart Group in Beijing. Previously, Guyao Bread was only a supplier of bread billet, with a revenue of 56.28 million yuan and a net profit of 1.4 million yuan in 2016.
The net profit of the first phase of the land restoration and agricultural products planting project will be increased by hundreds of millions. It was announced that Beijing Grain Group provided financial support to Pearl River Holdings. The initial loan amount is 1 billion yuan, the interest rate is not higher than the bank loan interest rate for the same period, and the loan term is three years. The loan will be used specifically for the acquisition of large healthy and large agricultural high-profit industrial projects in coordination with Beijing Grain's share business. the intended projects include: a land restoration project of not less than 20,000 mu (expected to achieve a net profit of not less than 80 million yuan), the cultivation and sale of organic and green pollution-free agricultural products (expected to achieve a net profit of not less than 20 million yuan), and so on. It will be implemented within 60 days after the completion of this major asset restructuring. Combined with the industrial chain layout of Beijing Grain Group and Beijing Food Co., Ltd., we estimate that this is not a random project, but may be the company's transformation to high-quality, high-value agricultural and sideline products and processed food to meet the demand of consumer upgrading.
Strategic cooperation with Wumart Group will improve profitability. The two sides complement each other and join forces to build an omni-channel retail network based in Beijing and radiate Beijing-Tianjin-Hebei, and strive to become the most efficient, cost-effective and competitive food industry chain in Beijing-Tianjin-Hebei region. The cooperation between the two sides will help to promote the adjustment of the product structure of Pearl River Holdings to the high end, and promote the production and supply resources of oil products, food and snack foods of Pearl River Holdings and the circulation channels of Wumart Group with 350 stores in Beijing as the core to form a win-win cooperation mechanism. The first phase of cooperation covers three aspects: first, to increase cooperation at the capital level, Wumart Group to buy a stake in ancient ship bread; second, to increase the marketing and promotion of Pearl River holding products; third, cooperation to operate the central kitchen to support the supermarket catering model.
Investment advice. We expect the company to have an EPS0.39/0.60/0.79 of RMB 2017-2019, which is more than the average PE27 of the company in 2018. Taking into account the imminent completion of the asset exchange, the strong strength of Beijing Food Group and the great potential for endogenous and epitaxial growth of listed companies, we give the company 27 times PE in 2018, with a target price of RMB16.2and the current price of RMB10.2RMB, which is upgraded to the "buy" rating.
Risk hint. Crude oil and oil prices are rising too fast, and the progress of subsequent mergers and acquisitions or asset injection is slow.