Event

Mingjiahui released its 2018 semi-annual report: from January to June 2018, the company achieved operating income of 653 million yuan, an increase of 158.3% over the same period last year; net profit of 178 million yuan, an increase of 166.6% over the same period last year; and net profit of 178 million yuan, an increase of 167.9%. The net profit of homecoming in the first half of this year has exceeded the level of the whole of last year.

Brief comment

Quarter by quarter: the company's performance in the second quarter increased by 208.4% compared with the same period last year.

The company's Q1 and Q2 realized operating income of 150 million yuan and 500 million yuan respectively, an increase of 62.4% and 215.2% respectively over the same period last year, and realized a net profit of 30 million yuan and 140 million yuan, an increase of 69.7% and 208.4% respectively over the same period last year. Zhejiang Yonglin Lighting acquired by the company was consolidated on April 30 and generated a net profit of 27.674 million yuan from May to June. Excluding it, Q2's net profit increased by 147.5 per cent year-on-year and 125.2 per cent in the first half of the year.

Net profit from January to September 2018 is expected to increase by 111.5% 124.5% compared with the same period last year.

The company expects to achieve a cumulative net profit of 240 million yuan to 260 million yuan from January to September 2018, an increase of 111.5% and 124.5% over the same period last year. Of this total, the net profit in the third quarter is expected to be 65 million yuan to 80 million yuan, an increase of 28.3% 57.9% over the same period last year. Driven by major national events, the local government's development of night outing economy and the steady progress of small towns with characteristics and other factors, the landscape lighting industry has experienced blowout growth. As the landscape lighting industry is mainly private enterprises, subject to less restrictions on localization, the company enjoys the dual drive of industry growth and the increase of market share brought about by epitaxial mergers and acquisitions. We believe that the industry's high-profile demeanor will continue in the next few years.

The consolidated gross profit margin was 51.1%, down 3.78 percentage points from the same period last year.

During the reporting period, the company's comprehensive gross profit margin was 51.1%, of which the engineering construction business achieved a gross profit margin of 50.15%, down 5 percentage points from the same period last year. We believe that it is mainly due to the company's increased efforts to recover project funds and the adjustment of the focus of the business area from this year, more to first-and second-tier cities as well as cities with good payment methods and finances. Although the gross profit margin of the construction business has declined compared with the same period last year, by horizontal comparison, the gross profit margin of Liad, Alto Electronics and other companies has also declined compared with the same period last year, and the company's gross profit margin is still in the lead in the industry.

The net interest rate increased by 2.1 percentage points by 28.4%, and the rate fell sharply during the period.

During the reporting period, the company achieved a net interest rate of 28.4%, an increase of 2.1 percentage points over the same period last year, and the expense rate for the realization period was 13.8%, a sharp decrease of 7.8 percentage points compared with the same period last year. Among them, the sales expense rate, management expense rate and financial expense rate are 3.8%, 7.8% and 2.2% respectively, which is 1.3 percentage points higher than that of the same period last year. As the company's revenue expands, economies of scale lead to a decline in the rate of sales and administrative expenses. The increase in the rate of financial expenses was mainly due to the increase in bank borrowing with the expansion of business, and the interest expenditure increased by 11.91 million yuan over the same period last year. We believe that with the continued economies of scale and the availability of privately raised funds, the expense rate is expected to continue to decline in the future.

The marginal improvement of operating cash flow and the substantial increase of fund-raising cash flow

During the reporting period, the net operating cash outflow was 120 million yuan, 12 million yuan more than that of the same period last year, but the growth rate of net outflow slowed down. It is mainly due to the large increase in business volume during the reporting period and the improvement in the net operating cash flow caused by the increase in payback in the same period. The company's income-to-cash ratio is 0.29, down slightly from the same period last year. The net outflow of investment cash flow was 260 million yuan, mainly due to the cash acquisition of Zhejiang Yongqi subsidiary during the reporting period. The net inflow of fund-raising cash flow was 1.08 billion yuan, mainly due to the directional issuance of additional shares and the expansion of financing scale during the reporting period, of which 880 million yuan was raised in private and 490 million yuan in cash received from loans, resulting in a large increase in net cash flow of fund-raising.

With sufficient orders on hand, future income is guaranteed.

By the end of May, the company had made an order of about 2.5 billion yuan, with a guarantee multiple of 3.7 times. Among them, the amount of money that has won the bid and signed the contract in Shenzhen is about 300 million. In June, the company signed a cooperation agreement on the PPP project of Landscape Lighting Optimization and Promotion Project of the Urban Administration of Qingdao West Coast New area, with a total investment of about 340 million yuan, including a construction period of 0.5 years and an operation period of 11 years, with a return on investment of about 4.9%. It is expected to contribute income by the end of the year. The private fund of 880 million yuan was put in place at the end of April, the on-hand order is expected to be transformed smoothly, and the performance growth in the next few years is guaranteed.

The company enjoys the magnificent demeanor of the industry and gives a rating of "increasing its holdings".

As one of the leaders in the landscape lighting industry, the company enjoys the high scene demeanor of the industry through endogenous epitaxy. In the 17-year employee stock ownership plan and this year's private offering, major shareholders have continuously increased their holdings in the company, demonstrating their confidence in the company's future performance. Through the acquisition of Zhejiang Yonglin Lighting, the company regards it as a bridgehead to carry out business in East China, and its market share is expected to further increase. We estimate that the homing net profit of the company from 2018 to 2020 is RMB 849 million, EPS is RMB 1.11, and the target price is RMB 20.9, corresponding to PE of 18.8, 11.7 and 8.6x. Coverage for the first time, giving a "overweight" rating.

Risk tips: poor payback leads to an increase in bad debts; impairment of goodwill; continued deterioration of cash flow; weakening industry policy support