Main points of investment
In 2018, H1's net profit was + 40%, and the profitability of Hong Kong Machinery increased steadily: the company released its 2018 semi-annual report, with a total revenue of 10.072 billion yuan,-5.14% compared with the same period last year, mainly due to the decline in marine heavy equipment orders; the net profit from home was 162 million yuan, + 40.45% from the same period last year; deducting the non-return net profit from 122 million yuan, + 11.16% from the same period last year. From a product point of view, the company's main port machinery revenue is 7.078 billion yuan, year-on-year + 8.44%, accounting for 70.28% of the company's revenue, gross profit margin 24.98%, year-on-year + 3.09pct, gross profit margin reached a record high in the first half of the year, reflecting the company's strong bargaining power in the port machinery plate and structural optimization brought about by automated terminals. The marine-based heavy equipment business achieved revenue of 985 million yuan, year-on-year-58.09%, gross profit margin 1.56%, year-on-year-2.08pct, still at the bottom. Overall, the company's 2018H1 gross margin was 17.66%, up slightly from a year earlier.
The three expense rates all increased, and the debt ratio increased slightly: 2018H1 management expenses 866 million yuan, expense rate 8.60%, year-on-year + 1.48pct, mainly due to the increase in intermediary fees and staff salaries; financial expenses 720 million yuan, expense rate 7.15%, year-on-year + 2.72pct, mainly due to the increase in interest payments and exchange losses caused by RMB-dollar exchange rate fluctuations. The company's sales expenses are 53 million yuan, with an expense rate of 0.53%, year-on-year + 0.04pct, which is mainly due to the company's increased efforts to explore and sell the global market. The three fees total 16.28%, which is + 4.24pct compared with the same period last year. In addition, the company's asset-liability ratio of 75.90%, year-on-year + 2.46pct, is mainly due to the increase in long-term borrowing.
Hong Kong machinery orders have picked up sharply and are optimistic about the upward trend of the plate: the company's port machinery products have ranked first in the global market share for 20 years in a row, the core product quayside crane accounts for more than 80% of the global market share, and Fangqiao occupies more than 50% of the global market share. We expect that the recovery in global trade in 2016-17 will lead to a recovery in Hong Kong machinery orders. 2018H1 signed a new contract of US $1.323 billion for Hong Kong aircraft, an increase of 34.04% over the same period last year, and the order situation showed a substantial reversal. Factors such as the addition of new ports in countries along the "Belt and Road Initiative" route, the renewal demand for old port machinery and equipment, the construction of shipping centers and free trade ports, the construction of new automatic terminals and the automation transformation of old terminals have all brought new opportunities to the front market of the port machinery industry.
The marine market has been cleared and new orders have seen a breakthrough: the fall in oil prices has led to a cold winter for the global marine industry since 2014. Self-rising, low utilization of semi-submersible platform and excessive surplus capacity lead to significant asset impairment of the company. 2018H1 made provision for asset impairment loss of 51 million yuan, down 73.7% from the same period last year. We expect that the provision of the marine sector has been basically completed. 2018H1, the newly signed contract value of the company's marine business is 269 million yuan, an increase of 144.5% over the same period last year. With the clearance of risks in the marine market and the sharp pick-up in global oil prices in 2018, the industry-wide chain of oil services has been significantly boosted, and marine equipment and shipping sectors are expected to continue to benefit.
Profit forecast and investment rating: the company is in an absolute leading position in the Hong Kong machinery industry, marine clearance is relatively sufficient, it is expected that the company's performance has entered an upward channel. It is estimated that the company's net profit in 2018-20 is 507 million, 805 million, 1.209 billion yuan, corresponding to EPS 0.10,0.15,0.23 yuan, corresponding to PE36, 23,15X. Maintain a "buy" rating.
Risk hint: the post-machine market development of Hong Kong is not as expected, and the recovery of global trade is lower than expected.