China dredging Environmental Protection (00871 HK) reported that revenue in the first half of 14 fell 10.8 per cent from a year earlier to 450.7 million yuan. Net profit fell 48.9% to 54.7 million yuan. The performance was lower than expected. The two core businesses fell at the same time, and the gross profit margin fell more than expected. Gross profit margin fell 5.7 percentage points year-on-year to 30.4%. The net debt ratio increased by 0.3 percentage points to 32.2% compared with December 31, 2013.

Revenue from infrastructure dredging fell 11.8% to 203 million yuan compared with the same period last year. We estimate that the annual revenue from infrastructure dredging in 14-16 will be maintained at $350 million to $450 million, but the gross profit margin may fall further by 1 to 2 percentage points. Revenue from environmental dredging and water treatment fell 26.3% year-on-year to 129 million yuan, mainly due to the extension of newly signed contracts. However, environmental dredging capacity increased to 3 million cubic meters, up from 1 million cubic meters in 2013. We believe that the risk of accounts receivable is the biggest risk of the company. Corporate debt is high, but it is not a serious problem.

The 14-16 earnings per share forecasts were lowered by 56.3%, 50.1% and 48.0% to 0.126 yuan, 0.177 yuan and 0.218 yuan. It is currently valued at 13.1 pounds, 8.9 pounds, 7.5 times 14-15-16 forward price-to-earnings ratio. It lowered its target price by HK $2.30, corresponding to 14.3 times 10.2 times forward earnings on 14-15-16. Maintain "collection". Investors should pay attention to the potential dilution effects from warrants, warrants and convertible bonds.