Event: the company released its 2018 interim report. In 2018, H1 realized operating income of 1.79 billion yuan, an increase of 19.8% over the same period last year, and its net profit was 310 million yuan, an increase of 30.7% compared with the same period last year.

Driven by the dual main business of automobile and garden, it maintained steady growth: the operating income of 2018Q1 and Q2 of the company was 690 million yuan and 1.1 billion yuan respectively, up 21.1% and 19.0% over the same period last year, and the net profit was 129 million yuan and 181 million yuan respectively, up 66.7% and 13.3% respectively over the same period last year. Benefiting from the recovery of the domestic automobile market and the high prosperity of the environmental protection garden industry in the first half of the year, 2018H1 contributed business increment from both the automobile and garden businesses. Revenue from hose products in the automotive business was 240 million yuan, an increase of 8.8 percent over the same period last year, and revenue from rubber damping products was 410 million yuan, an increase of 22.4 percent over the same period last year. In the garden business, the revenue of real estate gardens was 310 million yuan, an increase of 15.5% over the same period last year, and that of municipal gardens was 680 million yuan, an increase of 24.2% over the same period last year. The company's 2018H1 order (including winning the bid) is 7.91 billion yuan, an increase of 49.8% over the same period last year, and the order-to-income ratio is 3.1 times. At the same time, the newly signed framework agreement reached 11.6 billion yuan in 2018, the landing of the framework agreement and abundant orders on hand will ensure the company's future performance continued growth.

During the period, the expense rate has greatly improved compared with Q1, and the cash flow situation can be improved: the gross profit margin of 2018H1 is 32.7%, which is 1.4% lower than that of the same period last year, mainly due to the reduction of gross profit margin of real estate and garden business and automobile business. The net interest rate was 17.5%, an increase of 1.6 percentage points over the same period last year, mainly affected by land auction revenue in the old factory area. The expense rate during the period was 17.5%, an increase of 2.5 percentage points over the same period last year, but a sharp improvement of 4.2 percentage points compared with Q1. Among them, the sales expense rate was 5.5%, an increase of 0.8%, mainly because a large number of garden business began to enter the maintenance period, resulting in an increase of 135.5% in maintenance costs. The management expense rate was 7.7%, an increase of 0.8% over the same period last year, mainly due to the company's business expansion. The financial expense rate was 4.3%, an increase of 0.8% over the same period last year, mainly due to the increase in interest on funds occupied by the growth of garden business. The net outflow of OCF during the reporting period was 130 million yuan, mainly due to the substantial increase in project payments made by business growth. While the company is rapidly promoting its business, it is also constantly strengthening cost control and fine management, during which further improvements in expenses and cash flow can be expected.

Multi-dimensional financing + extension mergers and acquisitions to strengthen the main business expansion: 1) the company's 2018H1 actively carries out financing through various channels, and convertible bonds are approved, and the company plans to issue 700 million yuan of convertible bonds, while the company plans to issue 500 million yuan of medium-term notes. Multi-channel financing will increase considerable cash flow for the company, ensure the smooth progress of the project, significantly enhance the company's financial strength, and further improve the company's business contracting capacity. 2) the company's 2018H1 actively integrates mergers and acquisitions to expand and enhance the main business areas. In the first half of the year, through the acquisition of integrated environment and an increase of 20.4 million yuan, the company will enhance its business capacity in the field of environmental governance and ecological restoration, form a synergistic and complementary effect with Saishi Garden, and expand the company's business scope. With the help of financing and mergers and acquisitions, the layout of the company's garden industry is more perfect, the competitive strength is further enhanced, and the performance is expected to continue to grow.

Profit forecast and rating: the compound growth rate of operating income and return net profit from 2018 to 2020 is expected to be 36.47% and 37.12%. The layout of the company's garden industry is gradually improved, and the order on hand is full. The garden business will continue to expand in the future, giving the company a valuation of 18 times in 2018 and maintaining the "buy" rating.

Risk hint: the progress of the project may not be as expected, and the business expansion may not be as expected.