Main points of investment
2018Q1's performance increased by 26%, and the company's profitability continued to improve.
According to the company's quarterly report for 2018, 2018Q1 achieved revenue of 4.69 billion yuan, an increase of 11% over the same period last year, and a net profit of 83.59 million yuan, an increase of 26% over the same period last year.
We believe that the company's revenue grew year-on-year (down 10% for the whole of 2017), and the growth rate was higher than the revenue growth rate. 2018Q1 gross profit margin was 18.13%, an increase of 0.56pct over the whole of 2017, reflecting the company's continued improvement in profitability.
As the global container shipping continues to pick up, the oil service industry is booming, and the company's marine equipment is expected to release performance flexibility, we believe that the company is expected to release greater performance flexibility in 2018-2020.
Port machinery business is expected to rebound, provide port machinery life cycle services, and open up new growth points of port machinery business.
The newly signed contract value of the company's port machinery business in 2017 was 2.52 billion US dollars, down slightly 3.7% from the same period last year. As port machinery lags 1-2 years behind the shipping cycle, the decline in revenue from container crane business in 2017 reflects the relatively depressed container transportation market in 2016. With the overall recovery of the container transportation market from 2017, the company's container crane business is expected to rebound in 2018.
The company has the world's largest terminal customer resources, through big data to build a global port machinery spare parts supply platform, gradually dominate the global port machinery spare parts after-sales service market, to provide customers with port machinery life cycle services. According to the estimation, the loss of spare parts of container port machinery is about 3 US dollars / TEU, and the global port throughput is about 700-800 million TEU. Static statistics, the global container port machinery spare parts market is about 21-2.4 billion US dollars per year, the market space is broad, the company is expected to develop a new growth model of port machinery business.
The upward shift of the international oil price center has led to a rebound in the oil service industry, and marine equipment is expected to provide greater performance flexibility.
Since the lowest level of about 26 US dollars per barrel at the beginning of 2016, international oil prices have continued to fluctuate upward, constantly tamping the price center, and cloth oil once broke the $70 mark. If oil prices stand firm on the platform of 55-65 US dollars per barrel, the oil and gas equipment and services sector is expected to gradually move from oil price rising theme investment to fundamental investment, and is expected to usher in strategic investment opportunities similar to the recovery of construction machinery in 2016.
We believe that the impairment of the company's marine equipment assets is sufficient and the risk is clear. with the continuous recovery of capital expenditure on international global oil and gas exploration, the marine equipment business is expected to provide greater performance flexibility in the future.
The controlling shareholder is changed to China Communications Group, and the reform of state-owned enterprises is expected to be accelerated.
The controlling shareholder of the company, China Communications and Construction, transferred a total of 1.32 billion shares (accounting for 29.99% of the company's share capital) to the actual controller, China Communications Group and its subsidiaries through agreement. After the change of rights and interests, the controlling shareholder of the company was changed from China Communications and Construction to China Communications Group. Zhongjiao Group is one of the pilot units of the state-owned capital investment company. With Zhenhua heavy Industry changing from Sun Company of Zhongjiao Group to a subsidiary, the reform of state-owned enterprises at the group level may be accelerated.
Investment advice: the company is the global leader in Hong Kong machinery, ranking first in the market share of Hong Kong machinery market for many years in a row. In recent years, it has made continuous efforts in marine engineering, investment and other business areas, and various major business areas have formed good synergy. With the sustained recovery of the global economy, the profitability of the company's port machinery business has been improved, relying on China Communications Group to undertake major domestic and foreign large-scale infrastructure projects, benefiting from "Belt and Road Initiative" port construction and PPP investment. After a large amount of asset impairment in recent years, the company's marine risk has been fully released, asset quality has been significantly improved, and has a high margin of safety. We judge that the company's performance is expected to exceed market expectations. It is estimated that the EPS from 2018 to 2020 is 0.10, 0.14, and 0.19 yuan, respectively, and the corresponding PE is 50-36-26. Maintain the "overweight" rating.
Risk tips: the marine equipment business is in the doldrums; global trade is lower than expected; and the reform of state-owned enterprises is lower than expected risks.