Events:

Dongxu Blue Sky released its 2017 annual report on the evening of April 24, 2018.

From January to December 2017, Dongxu Lantian achieved an operating income of 8.131 billion yuan, an increase of 115.48 percent over the same period last year, and the net profit belonging to shareholders of listed companies was 544 million yuan, an increase of 210.24 percent over the same period last year. After deducting one-time factors, the company's net profit of non-attribution to the parent company was 536 million yuan, an increase of 323.31% over the same period last year. Basic earnings per share were 0.41 yuan, an increase of 115.79 percent over the same period last year. The company's performance growth is basically in line with our expectations.

The profit distribution plan examined and approved by the company's board of directors in 2017 is to distribute a cash dividend of 0.41 yuan (including tax) to all shareholders for every 10 shares on the basis of 1337173272.

Comments:

First, the net profit attributable to 2017 increased by more than 210% compared with the same period last year, mainly due to the rapid expansion of new energy + environmental protection business in 2017, the company's revenue and performance are expected to achieve substantial growth.

On the one hand, because of the company's new energy business, photovoltaic operation put into operation of the unit capacity increased significantly, photovoltaic operation performance growth. At the same time, the performance of photovoltaic EPC projects has also improved rapidly, contributing to the growth of revenue and profits in 2017.

The company's strategy of coordinated development of new energy plus environmental protection has achieved practical results, and some PPP projects are located in the key areas of the company's new energy business, and the follow-up operation of environmental protection projects in the future will also complement local clean energy and integrated smart energy operation of distribution and distribution, so as to effectively reduce pollutant emissions in the region.

The company's growth rate is basically in line with our expectations, and the company's good execution has been continuously verified.

II. Analysis of gross profit margin, expense rate and cash flow

Dongxu Blue Sky's annual income in 2017 was 8.131 billion yuan, an increase of 115.48 percent over the same period last year. For the whole year, the company's operating cost was 6.801 billion yuan, an increase of 116.11% over the same period last year, and gross profit was 1.33 billion yuan, an increase of 112.32% over the same period last year. The gross profit margin is 16.36%, which is basically the same as that of the same period last year.

Expense rate analysis:

In terms of expense rate, for the whole of 2017, the sales fee of Dongxu Blue Sky was 114 million yuan, an increase of 126.78% over the same period last year, and the sales expense rate was 1.40%, an increase of 0.1pct over the same period last year. The management fee was 328 million yuan, an increase of 109.72% over the same period last year, and the management expense rate was 4.04%, which was lower than that of the same period last year-0.1pct. The financial expense was 207 million yuan, an increase of 49.16% over the same period last year, and the financial expense rate was 2.54%, which was lower than that of the same period last year-1.2pct.

Overall, Dongxu Blue Sky in the rapid expansion of the scope and scale of business at the same time, the expense rate has been controlled, achieved a small decline.

Cash flow analysis:

As can be seen from the cash flow statement, for the whole of 2017, Dongxu Blue Sky received 7.81676 billion yuan in cash for selling goods and providing services, an increase of 4.867 billion yuan over the same period last year and an increase of 165.02 percent over the same period last year. The cash / operating income received from the sale of goods and services was 96.14%, an increase of 17.97pct over the same period last year.

Accounts receivable increased by 138.09% over the same period last year, and the proportion of receivables / operating income was 31.23%, which was smaller than that of 3.0pct in the same period last year. The advance payment decreased by 25.15% compared with the same period last year, and the proportion of advance payment / operating income was 5.03%, which was lower than that of the same period last year. Inventory decreased by 52.85% compared with the same period last year, and the proportion of inventory / operating income was 16.01%, which was lower than that of the same period last year. The larger change was mainly due to the company's inclusion of inventory in the real estate sector in the list of assets held for sale.

Conclusion: the cash flow of the company has improved, reflecting the better operation and management ability of the company.

Third, on-hand orders and future order plans

Recently, with the strengthening of marketing efforts in environmental protection and related sectors, Dongxu Lantian has gained a lot in the field of ecological environmental protection and related PPP recently.

In addition to the 2.7 billion yuan in-hand order announced during the acquisition of Star View Ecology, Dongxu Lantian also frequently signed framework agreements or won bid PPP projects in the PPP field from June 2017 to January 2018.

The major bid-winning orders announced recently include:

On December 8, 2017, the company won the bid for the "one water, two pollution" PPP project in Mojiang County, Yunnan Province, with a project scale of about 530 million yuan.

On December 14, 2017, the company won the bid for the demonstration PPP project of the new urbanization water ecological transformation in Dunhua City, with a scale of about 380 million yuan.

On January 30, 2018, the company won the bid for the PPP project of Modern Agricultural demonstration Park, Qilin District, Qujing City, with a scale of about 1.18 billion yuan.

On January 31, 2018, the company won the bid for the ecotourism poverty alleviation PPP project of Tujia Pastoral complex in Longshan County, with a scale of about 1.01 billion yuan.

On February 1, 2018, the company won the bid to upgrade the living environment PPP project in Yongsheng County, with a scale of 1.853 billion.

On February 23, 2018, the company won the bid for the comprehensive development PPP project in the new urban area of Longshan County, with a scale of 2.58 billion yuan.

On March 15, 2018, the company announced that it won the bid for the PPP project of the ecological water system around the city, Gaoqing County, Zibo City, with a scale of 630 million yuan.

On April 13, 2018, the company announced that it won the bid for the environmental improvement and infrastructure PPP project (Phase II) of Fangmaping Scenic spot, Xingren County, Guizhou Province, with a scale of 440 million yuan.

At present, the company announced the winning bid + frame PPP order, a total of about 18.63 billion yuan (excluding the possible partial overlap of the 6.5 billion yuan of Hebei Xingtai City PPP framework agreement).

In addition to the projects that have won the bid, the framework agreement will also be transformed into actual orders and finally realized after the pre-project feasibility planning, two evaluation and one case.

As the company has not been in the PPP field for a long time, most of the orders were won or signed in the second half of 2017, so the storage procedures and procedures are more standardized, and there is little impact on the inventory clearance process. It does not affect the landing of orders and performance release during 2018-2020.

Fourth, buy out the real estate sector, it is expected to get an income of about 1 billion yuan in the first quarter on December 19, 2017, Dongxu Blue Sky announcement intends to divest the original real estate business assets.

The main content of the announcement: in order to concentrate resources on new energy and ecological environmental protection business, seize historical opportunities to participate in the construction of beautiful China, and ensure that performance enters the fast track of rapid growth, Dongxu Lantian New Energy Co., Ltd. and its wholly-owned subsidiary Dongxu Hongji Real Estate Group Co., Ltd. plan to sign an "Asset transfer Agreement" with Tibet Asset Asset Management Co., Ltd. Transfer all the real estate business assets and rights and interests of the company to the rising sun capital, with a total transaction consideration of 2.1344741 billion yuan.

Comment 1, the impact of 2018Q1 earnings: this divestiture of the real estate sector, is expected to achieve a certain premium income. Dongxu Blue Sky Quarterly report announced on April 14, 2018 shows that the company made a profit of 1.07 billion yuan to 1.11 billion yuan in the first quarter.

According to the performance notice, the company has received more than 51% of the equity transfer, and recovered all the 2890759729.47 yuan owed by the target company to the company, and the target assets have completed the transfer of ownership procedures such as industrial and commercial changes, and the transfer income will be included in the investment income of the current period.

Comment 2, bringing about 1 billion yuan in investment income in 2018.

Comment 3, this transaction will help the company to further focus on the main business. Promote the faster development and achievement of ecological and environmental protection and new energy industry, reduce financial expenses, reduce asset-liability ratio, and enhance the company's core competitiveness.

Profit Forecast and Investment suggestions

Judging from the recent business progress of the company, the strategic layout of the company as an integrated service provider of environmental protection and new energy has become increasingly clear, and the synergy of green energy and green environment will gradually appear in the future.

In the short term, on the one hand, the company has stepped up its environmental protection business, the PPP project has gained a lot recently, and the previous framework agreement has been gradually implemented as a bid-winning order, while the company's extension continues to expand, and mergers and acquisitions have entered the hazardous waste treatment business and rural sewage treatment business; on the other hand, the company's original photovoltaic and new energy business has also continued to advance.

Generally speaking, the business blossoms at many points and extends vigorously to the field of environmental protection, and the coordinated change of business layout has also promoted the rapid growth of the company's performance.

Assuming that the newly signed environmental protection PPP (and non-PPP) contracts of Starscape Ecology in 2018-2019 achieve the expected target of 70 yuan and 8 billion yuan respectively, while other eco-environmental protection teams of the company also make efforts to obtain newly signed units; in traditional business, the grid-connected scale of photovoltaic power stations from 2018 to 2019 are 1000MW and 1000MW respectively, and other businesses develop steadily.

Based on the above assumptions, and not considering the one-time investment income brought by the real estate sector for the time being, we estimate that the company's non-attributable net profit from 2018 to 2019 will be 1.04 billion yuan and 2.06 billion yuan respectively, with a compound growth rate of close to 100% in the next two years.

If we consider the increase in one-off investment income brought by the real estate sector in 2018, we estimate that the non-vested net profit realized by the company from 2018 to 2019 is about 2.04 billion yuan and 2.06 billion yuan respectively.

Considering that the company has entered the fast lane of development, the increase in orders and business growth will be gradually realized, the rapid growth of newly signed PPP orders + the rapid landing of operation business in 2017 reflects the strong execution of the company's management team, and after the synergy effect of the business sector appears, the future growth potential is even greater, in view of the high growth of the company's performance, it is given a "highly recommended-A" rating.

Risk tips: the progress of construction, grid connection and settlement is lower than expected, photovoltaic subsidies are reduced, and the expansion of the environmental protection market is not as expected.