Events:

The company released its 2018 semi-annual report on August 14, 2018.2018. In the first half of 2018, the company achieved operating income of 402 million yuan, an increase of 12.81% over the same period last year, and a net profit of 105 million yuan, an increase of 54.75% over the same period last year. Of this total, Q2 revenue increased by 7.87% over the same period last year, net profit from return to mother increased by 9.9%, and non-return income increased by 12.65% compared with the same period last year.

Viewpoint:

The performance is basically in line with expectations. In the first half of the year, the company achieved revenue of 402 million, YOY+12.81%; operating profit of 67 million, YOY+62.8%; home net profit of 105 million, YOY+54.75%. While ploughing Henan, the company is actively expanding outside the province and overseas markets, and multi-growth poles promote the company's performance. The company is the consulting leader of capital construction projects in Henan Province, providing survey and design, planning consultation, testing and other consulting services for highway, water transportation, municipal and other projects. It was established in 1964 and listed in 2017, with fruitful achievements during the period. It includes the survey and design of more than 15000 km of highways, more than 5000 km of highways, more than 500 bridges and extra-large bridges. During the 13th five-year Plan period, the investment in Henan transportation system maintained a high growth, and the total investment in major facilities exceeded 665 billion. As a regional leader, the company will continue to benefit. From 2013 to 2017, the proportion of business in central China continued to decline, from 95% to 84%. The proportion of business in other regions of the country increased to varying degrees, and overseas business grew rapidly. As a leader in foreign engineering consulting business, the company has participated in and undertaken more than 40 major foreign aid highway projects, and currently has overseas offices in Cambodia. In 2017, the company's overseas business income was 37 million yuan, and the share of YOY+676%, increased to 3.92%. With the promotion of the national "Belt and Road Initiative" strategy, the company's overseas layout and business model are becoming more and more mature, and it is expected to continue to contribute incremental performance.

The rate control is stable and the profit level remains in the lead. Benefiting from strong technical strength, economies of scale, high-cost high-tech large project order-driven and relatively low labor costs in the province, the company's main business gross profit margin has maintained a leading level in the industry. The gross profit margin of the main business of company 201 is 51.34%, which is higher than that of central shares (49.6%), prospecting shares (46.7%), central group (35.54%) and Sujiaoko (31.27%) in the same period. The gross profit margin of the main business in the first half of 2018 fell 0.64 percentage points from the same period last year, still maintaining a high level. During the first half of the year, the control of expense rate was stable, the optimization of capital structure and the increase of interest income on structured deposits led to the reduction of financial expenses. During the first half of the year, the expense rate increased by 0.51% over the same period last year, steadily rising and maintaining the middle level of the industry, which was lower than that of Sujiaoko (16.35%) and higher than that of the Central Group (12.99%) in the same period.

Steadily promote the acquisition, complementary advantages to increase the momentum of expansion. The company issued an asset restructuring announcement on May 29, 2018.based on the company's development strategy, it intends to acquire no less than 67% of the shares of Sinopec International. Sinopec has excellent international assets, and its related business can form complementary advantages with the company. if the merger and acquisition is successful, the company can effectively integrate relevant resources, form economies of scale, create superior specialties, and improve the company's profitability and core competitiveness. it is of great significance for the company to greatly expand its business space and further become bigger and stronger. Zhongfeng International, formerly known as Zhengzhou Design and Research Institute of the Ministry of Coal Industry and the first batch of Grade An Industrial Research Institute approved by the country, is in a leading position in the industry in terms of qualification quantity and grade, and occupies a large market share in the coal design, housing construction design and consulting market in central China, and the general contracting market in the northwest region. At the same time, it distributes overseas engineering design consulting. Layout engineering design consulting business in Guinea, India, Laos, Uzbekistan and other countries. At present, the asset acquisition is progressing steadily, and the synergy effect is expected to be brought into full play after the reorganization, and the project selectivity will be further improved to enhance the competitiveness of the company's industry.

Conclusion:

During the reporting period, the company's operating performance improved steadily, the optimization of capital structure significantly reduced financial expenses, and the gross profit margin of the main business rose significantly to 48.97% in the second quarter, maintaining the leading level in the industry, and the expense rate during the period was 14.96%. Steadily rising to maintain a medium level in the industry. The company's effective business expansion outside the province and overseas constitutes a new growth point of performance, steadily promoting the acquisition of excellent assets and further expanding the scale effect, which increases the driving force for the expansion outside the province. We expect the company's operating income from 2018 to 2020 to be 1.325 billion yuan, 1.779 billion yuan and 2.259 billion yuan respectively; earnings per share are 2.46,3.44 yuan and 4.39 yuan respectively, corresponding to PE 14x, 10x and 8x respectively, with a "recommended" rating for the first time.

Risk hint: industry policy risk, market competition risk, non-provincial and overseas market expansion does not meet expectations