Incidents:
The company published its 2018 semi-annual report on 2018.8.24. In the first half of 2018, the company achieved revenue of 1,549 million yuan, a decrease of 0.31% over the previous year; achieved net profit of 117 million yuan, an increase of 117.98% over the previous year, and a year-on-year increase of 103.32% after deducting the non-return mother. Among them, Q2 achieved operating income of 475 million, a decrease of 38.91%; net profit returned to the mother was 0.4 million, an increase of 71.74% over the same period.
Opinions:
1. Revenue growth is falling to zero and profit growth is breaking 100. Presumably this is due to further adjustments in the business structure
Guimu's net profit growth rate was as high as 118%, presumably due to an increase in the share of high-margin businesses. In the first half of 2018, the company achieved revenue of 1,549 million yuan, YOY -0.31%, net profit of 117 million yuan, YOY +117.98%, after deducting non-YOY +103.32%. The higher profit growth rate was due to the increase in sales revenue of real estate projects compared to the same period last year. During the reporting period, real estate business subsidiaries contributed 622 million in revenue in the first half of the year and net profit of 78 million yuan, accounting for 40%/66% respectively. Engineering consulting subsidiaries contributed 435 million in revenue and 39 million in net profit, accounting for 28%/20% respectively. Since revenue from various business segments was not disclosed in detail in the semi-annual report, we determined that the growth rate of engineering construction consulting business during the reporting period dragged down overall revenue during the reporting period, based on the growth rate and share of various business segments in 17, combined with the month-on-month changes in the volume of newly signed construction business over the past two years. The share declined further, and the business structure was further adjusted;
The first quarter led to performance growth, and the second quarter dragged down revenue growth. Q1 achieved revenue of 1,074 million, YOY +38.34%, net profit of return to mother 77 million yuan, YOY +153.49%, net profit of non-YOY +168.15%; Q2 achieved revenue of 475 million yuan, YOY -38.91%, net profit of Guimo of 0.4 million yuan, YOY +71.74%, minus non-YOY +36.2%;
The signing of new construction orders in the second quarter accelerated markedly, strongly complementing existing orders. The number of new construction orders signed in the past six quarters was 550 million/110 million/350 million/450 million/50,000/50,000/1 billion, respectively. Since 2017 Q2, there has been a month-on-month increase. The year-on-year growth rate of new orders and major project orders increased significantly in 2018Q2. In 2017, 1.46 billion new construction contracts were signed, which is 0.65 times the revenue from the two businesses of construction consulting and environmental engineering during the corresponding period. 2018H1 signed more than 1.5 billion new construction contracts for the whole of the previous year. Since the semi-annual report did not disclose segmented business revenue, based on the judgment that the share of real estate business increased and the proportion of the above two businesses decreased accordingly, it is roughly estimated that the new orders signed in the first half of the year correspond to 1.6 times the revenue from the two engineering businesses. Ongoing construction orders were added. It is expected that the engineering construction consulting business will recover somewhat in the second half of the year.
2. Profitability levels and operating cash flow improved significantly
As gross margin increased and period rates declined, the overall profit level increased significantly. The company's main business in 2017 was science and technology park development (37.64%), residential (22.98%), environmental engineering (11.53%), and engineering construction consulting (9.21%) in terms of gross margin. The gross margin for the first half of the reporting period was 17.31%, up 3.2 pct, which is basically the same as the full year of 2017. The sales/management/finance rates were 1.25%/5.8%/-0.55%, respectively, and the year-on-year change was -0.9/0.9/-1.1 pct. The rate for the total period was 6.5%, down 1.1/0.1 pct from the full year of 2017 H1/2017, respectively. The income tax rate is 21.46% minus 7.8 pct. The net profit margin of 9.14% increased 4.7/0.8 pct respectively from 2017/H1/2017, a significant increase;
The pay-to-cash ratio increased dramatically, and operating cash flow improved markedly: during the reporting period, the company's current payout ratio was 232.6%/108.8%, respectively, an increase of 129/2 pcts respectively, and an increase of 146/28 pcts respectively over the full year of 2017. Net operating cash flow of $640 million was a significant improvement from the same period last year to $320 million, mainly due to an increase in sales paybacks for real estate projects in the current period compared to the same period last year. At the same time, net cash flow from fund-raising activities was 3.7 billion dollars, a sharp decrease compared to the same period last year of 1.01 billion. This was mainly due to a decrease in bank loans in the current period compared to the same period last year.
Conclusions:
The company's net profit growth rate reached 118% during the reporting period, presumably due to an increase in the share of high-margin businesses. The signing of new construction orders in the second quarter accelerated significantly and strongly complemented existing orders. Judging that construction business is expected to recover in the second half of the year, when combined with the rest of the high-growth business, will continue to drive rapid growth in performance. As gross margin increased and interest rates declined during the period, the overall profit level increased markedly, the pay-to-cash ratio increased dramatically, and operating cash flow improved markedly. The company's revenue from 2018 to 2020 is estimated to be 4,246 billion yuan, 5.291 billion yuan and 6.633 billion yuan respectively; earnings per share are 0.81 yuan, 1.02 yuan and 1.28 yuan respectively. The corresponding PE is 9.4X, 7.5X and 5.9X respectively, covered for the first time and given a “recommended” rating.
Risk warning: macroeconomic and policy risk, management risk, accounts receivable risk