Main points of investment
2018H1 performance increased by 40%, and the company's profitability continued to improve.
When the company released its 2018 semi-annual report, 2018H1 achieved revenue of 10.07 billion yuan, down 5% from the same period last year, and achieved a net profit of 162 million yuan, an increase of 40.5% over the same period last year. The company achieved a performance of 78.53 million yuan in the second quarter, a substantial increase of 60% over the same period last year, and the performance accelerated significantly in the second quarter.
We believe that the company in the first half of the year-on-year decline in revenue, performance to achieve a large increase, reflecting the company's profit quality is constantly improving. The company's gross profit margin in the first half of 2018 was 17.7%, an increase in 2.38pct compared with the same period last year, reflecting the continuous improvement of the company's profitability. As the global oil service industry is booming, we believe that the company is expected to release greater performance flexibility in 2018-2020.
The company's port machinery business continues to improve, and the port machinery life cycle service opens up new growth points of the port machinery business.
In the first half of 2018, the company's container crane revenue reached 7.08 billion yuan, an increase of 8.4% over the same period last year, accounting for 70% of the operating revenue. The gross profit margin of 2018H1 container crane business reached 25%, an increase of 3.1pct over the same period last year, and the profit quality continued to improve. The newly signed contract value of the company's port machinery business in the first half of 2018 was US $1.323 billion, an increase of 34% over the same period last year.
The company has the world's largest terminal customer resources, through big data to build a global port machinery spare parts supply platform, gradually dominate the global port machinery spare parts after-sales service market, to provide customers with port machinery life cycle services. According to the estimation, the loss of spare parts of container port machinery is about 3 US dollars / TEU, and the global port throughput is about 700-800 million TEU. Static statistics, the global container port machinery spare parts market is about 21-2.4 billion US dollars per year, the market space is broad, the company is expected to develop a new growth model of port machinery business.
The upward shift of the international oil price center has led to a rebound in the oil service industry, and marine equipment is expected to provide greater performance flexibility.
In the first half of the year, the company's newly signed contracts for marine engineering and steel structure-related business totaled US $429 million, an increase of 66.93% over the same period last year, of which marine orders were US $269 million, a sharp increase of 145% over the same period last year.
In addition, the company's asset impairment loss in the first half of the year was 51.35 million yuan, a sharp drop of 74% compared with the same period last year. We believe that the impairment of the company's marine equipment assets is sufficient and the risk is clear, as the international global capital expenditure for oil and gas exploration continues to pick up. Marine equipment business is expected to provide greater performance flexibility in the future.
Investment advice: the company is the global leader in Hong Kong machinery, ranking first in the market share of Hong Kong machinery market for many years in a row. In recent years, it has made continuous efforts in marine engineering, investment and other business areas, and various major business areas have formed good synergy. With the sustained recovery of the global economy, the profitability of the company's port machinery business has been improved, relying on China Communications Group to undertake major domestic and foreign large-scale infrastructure projects, benefiting from "Belt and Road Initiative" port construction and PPP investment. After a large amount of asset impairment in recent years, the company's marine risk has been fully released, asset quality has been significantly improved, and has a high margin of safety. We judge that the company's performance is expected to exceed market expectations. It is estimated that the EPS from 2018 to 2020 is 0.10, 0.14, and 0.19 yuan, respectively, and the corresponding PE is 35-25-18. Maintain the "overweight" rating.
Risk hint: the risk of downturn in marine equipment business; the lower-than-expected risk of global trade; and the lower-than-expected risk of state-owned enterprise reform.