Brief comment on performance
CFHI disclosed the 2018 semi-annual report that the company achieved operating income of 5.398 billion yuan in the first half of 2018, + 35.42% year-on-year, the best level in the history of the same period; homed net profit of 46.0272 million yuan, + 134.79%. The improvement of the company's performance confirms the logic of the rebound in downstream demand, in line with previous expectations.
Business analysis
The company's performance continued to improve, and operating orders rose steadily: in the first half of 2018, the company's revenue grew rapidly, the best level in the same period in history; the total profit increased by 32.7 million yuan compared with the same period last year; new orders increased by 7.528 billion yuan in the first half of the year, + 24.02% compared with the same period last year; the balance of accounts received at the end of the period was 2.042 billion yuan, an increase of 58.19% over the beginning of the year. The substantial increase in the company's performance and accounts received in advance confirms that the industry is picking up. In addition, the company's operating efficiency continues to improve, the management expense rate, sales expense rate and financial expense rate are year-on-year-1.56ppt,-0.16ppt and-2.52ppt respectively, and the net sales interest rate is year-on-year + 0.38ppt.
The downstream demand is sustainable, and the company's leading advantage highlights: the company is the first of the seven heavy machines in China, with downstream areas such as iron and steel metallurgy, nuclear power, petrochemical, hydropower, thermal power and other national economic lifelines. It is expected to maximize the recovery of demand from many downstream industries. Refining and chemical projects and steel capacity replacement will accelerate their landing-refining and chemical projects with a total investment of more than one trillion yuan will be concentrated in the next three years, and steel capacity replacement will continue to be promoted in the second half of the 13th five-year Plan. At the same time, the construction of third-generation nuclear reactors in China has made progress one after another, and the National Energy Administration has put forward a plan to "start the construction of 6-8 third-generation nuclear power units every year"; the procurement of large hydropower stations and the maintenance and replacement demand of thermal power stations. We judge that the changes in various downstream industries will focus on driving the overall demand for heavy machinery and will be sustainable in the next three years.
The selection of the "double hundred enterprises" for the reform of state-owned enterprises is expected to further stimulate vitality: the company announced on August 18 that wholly-owned subsidiary engineering technology companies and hydrogenation companies were included in the "double hundred enterprises" of state-owned enterprise reform. SASAC requires the "two hundred enterprises" to achieve "five major breakthroughs and one persistence", that is, to achieve breakthroughs in mixed ownership reform, corporate governance structure, market-oriented management mechanism, incentive mechanism, and problems left over by history, while adhering to the leadership of the Party. We judge that with the follow-up formulation and implementation of the comprehensive reform plan, it will further stimulate its own vitality and enhance its core competitiveness.
Profit adjustment and investment suggestions
We maintain our profit forecast for the company. It is estimated that from 2018 to 2020, the company is expected to achieve an operating income of RMB 145.39max, a net profit of RMB 1.1.58 billion and a year-on-year + 426.02%, 133.51% and 11.98% of the company's operating income, respectively. The current stock price corresponds to 47X18PE and 20X19PE. We believe that the company's performance is stable and sustainable, maintaining the buy rating and the target price of 5 yuan.
Risk hint
Increased competition in the industry; large fluctuations in international oil prices; low expectations of nuclear power restoration process; nuclear leakage and so on.
