Main points of investment

Items:

The company released its third quarterly report for 2018:

In 2018, Q1-Q3 achieved operating income of 1.999 billion yuan (+ 22.26%), net profit of 287 million yuan (+ 50.25%), net profit of 248 million yuan (+ 29.55%) and earnings per share of 0.82 yuan (+ 49.09%), in line with expectations.

Among them, 2018Q3 realized operating income of 801 million yuan (+ 8.72%), net profit of 152 million yuan (+ 46.43%), and non-return net profit of 135 million yuan (+ 29.42%).

Peace viewpoint:

Q3 revenue growth declined but gross profit margin increased, focusing on the main business strategy achieved results. The revenue growth rate of Q3 is only 8.72%, which is significantly lower than the 38.39% and 30.41% of Q1 and Q2, but the gross profit margin is 43.11%, which is significantly higher than that of 39.59% of Q3 last year and 40.82% of Q2. And it has been increasing continuously since Q1. We believe that the main reason is that the company strips off some of its lossmaking tourism assets and focuses on cognitive business and profitable tourism assets, resulting in a decline in revenue growth but enhanced profitability.

The substantial increase in the scale of receipts and payments is mainly related to the increase in the scale of cognitive business. At the end of the third quarter, the advance payment of the company was 711 million yuan, an increase of 126.55% over the end of last year, and the advance payment was 258 million yuan, an increase of 309.21% over the end of last year, mainly due to the substantial increase in the scale of cognitive business. However, the company's net operating cash flow improved significantly, from-228 million yuan at the end of last year to-143 million yuan at the end of the third quarter. The main reason is that the ratio of accounts receivable to income decreases after the company takes relevant measures to recognize the business income of solutions, as well as strengthening the collection of accounts receivable and the ability to refund sales. In addition, the company's other receivables increased significantly, from 95.06 million yuan at the end of last year to 678 million yuan at the end of the third quarter, mainly because the sale of tourism business during the reporting period adjusted the original internal transactions to external receivables, which is expected to be fully recovered in the fourth quarter.

After the disposal of loss-making tourism assets, focus on the main business. In the first half of the year, the company launched a plan to transfer shares in five subsidiaries, including Guangxi Hongshuihe Tourism Development Co., Ltd., Qinhuangdao Xinyi Tourism Co., Ltd. As of the third quarter, the company has completed the transfer of subsidiaries. After the completion of the equity transfer of the relevant subsidiaries, the company will no longer participate in the operation of the Hongshuihe Scenic spot, the sea tour and the scenic spot operation around Yantai in Qinhuangdao, and can reduce the loss by about 40 million, and the business pattern of "dominated by cognitive business and supplemented by marine tourism route business" will become clearer.

The achievements of the national engineering laboratory of integrated command and dispatching technology have been transformed one after another, and the cognitive business strength has been further enhanced. In the third quarter, the company actively promoted the transformation and promotion of the achievements of the national engineering laboratory of integrated command and dispatching technology, and built an intelligent policing ecosystem with a trinity of data governance and service platform, big data intelligent modeling engine and integrated command and dispatching system. The big data intelligent policing products developed by the company have gradually landed in the video resource sharing platform (comprehensive actual combat application platform) construction project of the Public Security Bureau in South Yancheng, the new command center information system construction project of the Xuhui Branch of the Shanghai Public Security Bureau, and the Wuhan Public Security Bureau big data actual combat Tencent App Center modeling tools software procurement and other projects, serving the public security actual combat.

Complete the transfer of airline business assets, and better implement the double main business strategy of "cognition + marine tourism". The company transfers route business (Beihai-Weizhou Island, Beihai-Haikou route), port terminal services, ship repair business-related assets, liabilities and personnel from the parent company through capital transfer and debt transfer to Beihai Xinyi Cruise Co., Ltd. The transfer of related business has been completed in the third quarter, and all other assets have completed the transfer of property rights except that the real estate is still going through the formalities of property right change.

The project is progressing in an orderly manner. By the end of the third quarter, the 850 passenger ships on the Beiyang route had invested about 34.069 million yuan, accounting for about 47.32 percent of the planned investment; the international marine tourism service base project is carrying out the construction of the terminal and its underground parts, and has completed the construction of some ancillary facilities. By the end of the third quarter, the project had invested about 46.0678 million yuan, accounting for 10.47 percent of the planned investment.

Investment suggestion: the estimated net profit from 2018 to 2020 is 377 million yuan, 454 million yuan and 545 million yuan respectively, with year-on-year growth rates of 40.0%, 20.4% and 20.0% respectively. The company's new strategy and new management will bring a new atmosphere, we are optimistic about the company's cognitive business prospects, and marine tourism business trend is good, reiterate the "recommended" investment rating.

Risk tips: 1. Competition and technological innovation risk. With the arrival of the "Internet +" era, Internet enterprises have entered the fields of intelligent security, intelligent transportation and smart city, and the traditional information construction manufacturers are facing the challenges of Internet enterprises. The development of industry cognitive solution technology is changing with each passing day, and new technologies, new products and new applications are constantly emerging. if the ability of technological innovation can not continuously meet the needs of business development, it will adversely affect the continuation of Xinzhi's cognitive competitive advantage. 2. Risk of accounts receivable. The main customer groups of the industry cognitive solution business include public security, traffic management departments and system integrators who provide services for public security and traffic management departments. Affected by the long settlement cycle and other industry characteristics, the industry cognitive solution business needs to advance funds to carry out related business. If the local budget is tight and the financial situation of customers is deteriorating, Xin Zhi Cognition may still face the risk that accounts receivable cannot be collected or that the payment time is too long. 3. The bad weather affects the risk of business performance. Due to the influence of natural weather conditions, reduce the willingness of tourists to travel, bad weather, such as typhoons, tsunamis, landslides and other climate, geographical changes and other force majeure has a negative impact on marine routes and scenic spot operations.