Events:
The company released its annual report for 2017. In 2017, the company achieved operating income of 1.831 billion yuan, an increase of 30.98 percent over the same period last year; net profit of 125 million yuan, up 12.36 percent; basic earnings per share of 0.16 yuan, down 4.28 percent from the same period last year; and weighted average return on net assets of 4.57 percent, down 2.59 percent from the same period last year. The company intends to distribute a cash dividend of 0.60 yuan (including tax) to all shareholders for every 10 shares. Performance growth is lower than Shenwan Hongyuan expected.
The company released its first quarterly report in 2018. In the first quarter of 2018, the company achieved operating income of 454 million yuan, an increase of 88.75 percent over the same period last year; net profit belonging to shareholders of listed companies was 13 million yuan, up 27.83 percent over the same period last year; basic earnings per share was 0.0171 yuan, up 27.61 percent over the same period last year; weighted average return on net assets was 0.48 percent, up 0.09 percentage points over the same period last year.
Main points of investment:
The business of gas equipment grew steadily, and the number of new contracts increased by 42% compared with the same period last year. In 2017, the company's electrical equipment business revenue was 1.092 billion yuan, an increase of 59.63% over the same period last year, the amount of new contracts for products increased by 42.3% over the same period last year, and the total amount of contracts signed for the whole year increased by 61% over the previous year.
The company has obvious technical advantages in electrical equipment, high market share and continuous enhancement of product ability. The complete set of arc suppression and line selection equipment of the company has been successfully applied to most prefecture-level power supply systems of State Grid and Southern Power Grid. The company continues to develop new products independently, and has successfully entered the subway, port and other fields. Lingnan Cable, a subsidiary of the company, achieved an operating income of 725 million yuan and a total net profit of 80 million yuan, exceeding the three-year performance commitment.
Comprehensive energy business is growing steadily, and a variety of means are used to enhance its competitive advantage. In 2017, the company's comprehensive energy business revenue was 739 million yuan, an increase of 40.37% over the same period last year. The subsidiary Zhiguang Energy Saving achieves operating income of 320 million and net profit of 69 million yuan. The comprehensive energy-saving service business continued to maintain steady growth, but the net profit decreased, mainly due to the end of the income tax preferential period for some projects, the reduction of government subsidies for energy-saving projects, and the construction of new EMC, EPC and distributed energy projects. In 2017, the subsidiary Zhiguang Power achieved an operating income of 426 million yuan and a net profit of 21 million yuan, expanding the market in various ways, and the new model of "Internet + special transformation operation and maintenance" has been well practiced.
The internal and external growth is parallel, and the market prospect is broad. The company focuses on regional energy and actively carries out foreign investment and mergers and acquisitions of high-quality targets, which gives a strong impetus to the company's comprehensive energy service strategy and performance growth. The company has successively distributed electricity sales markets in Guangdong, Guangxi, Yunnan and Fujian provinces. The company's trading capacity reached 1.15 billion kilowatt-hours in 2017, and the value-added business of electric power sales continues to develop markets in Guangdong, Guangxi, Yunnan and Fujian. In 2017, Nandian Energy Comprehensive Utilization Co., Ltd. and Shanghai Tongqi New Energy Technology Co., Ltd., the company's capital increase and shareholding companies, have gradually won the market in Chengdu and Anhui.
Downgrade the profit forecast and maintain the rating: we downgrade the company's profit forecast and expect the company's 18-19 year net profit to be 1.54 yuan and 201 million yuan respectively (the original 18-19 year net profit is 2.03 yuan and 282 million yuan). The 20-year profit forecast is expected to be 244 million yuan in 2020, and the corresponding EPS is 0.20 yuan per share, 0.26 yuan per share and 0.31 yuan per share, respectively. The PE of the company's current share price is 23 times, 17 times and 15 times, respectively. Keep the "overweight" rating unchanged.