The company recently released a report for the third quarter of 2018 that its revenue in the first three quarters of 2018 was 974 million yuan, an increase of 135.81%, and its net profit was 253 million yuan, an increase of 115.48%. The comments are as follows:
The company's revenue has maintained rapid growth, and the prosperity of the landscape lighting industry has remained prosperous.
The company completed operating income of 974 million yuan in the first three quarters of 2018, an increase of 135.81%. The company's gross profit margin was 50.96%, down 4.97 percentage points from the same period last year, or due to the strong ability of the owner to pay for some projects, the related gross profit margin has been reduced. We believe that the company may benefit from the improvement of the prosperity of the industry, winning the bid for Futian, Nanshan and other projects in Shenzhen in the first half of the year, and the order structure is gradually tilting to first-and second-tier cities. The recent brightening landscapes in areas such as the Shanghai Summit in Qingdao and Futian in Shenzhen have left a deep impression on people. We believe that under the background of limited investment by local governments, landscape lighting projects with small investment and obvious results will become a better choice for all kinds of large-scale activities and to enhance the appearance of the city and increase the satisfaction of residents. In addition, we also need to pay attention to the further extension of the landscape lighting industry to night travel economy, smart city and other fields in the future.
During the period, the expense rate decreased significantly, and the growth rate of the company's return net profit was at a high level.
The company's expense rate for the first three quarters of 2018 was 15.26%, down 5.04 percentage points from a year earlier. Among them, the sales expense rate was 4.77%, down 2.25% from the same period last year; the management expense rate was 8.54%, down 3.46%; and the financial expense rate was 1.95%, an increase of 0.67%. The company provides for an impairment of 18 million yuan in assets, an increase of 10 million yuan over the previous value. The company's net interest rate was 26%, down 2.45 percentage points from the same period last year. In the same period, the net profit of returning to the mother was 253 million yuan, an increase of 115.48%.
The cash-to-income ratio has improved, and the net operating cash outflow is in line with the company's revenue growth.
The company's income-to-cash ratio was 0.3204, an increase of 6.44 percent; in the same period, the company's cash-to-payment ratio was 0.7359, an increase of 4.13 percent, slightly less than the former, and the cash-to-cash ratio improved to a certain extent compared with the same period last year. The net cash flow generated by operating activities in the same period was-237 million, a decrease of 102 million compared with the previous value.
Benefiting from the fixed increase in funds in the first half of the year, the company's asset-liability ratio at the end of September 2018 was 46.36%, which was significantly lower than that at the beginning of the year. It is expected that with the initial payback of first-and second-tier urban projects gradually in place, the company's balance sheet will maintain a good expansion capacity. We believe that the stricter supervision of local government investment and financing has a limited impact on the financial capacity of first-and second-tier cities with better financial conditions, while the areas where companies take orders have gradually tilted to first-and second-tier cities. we believe that by strengthening the evaluation of the financial capacity of the region where the order is located, the company is expected to seek a better balance between performance growth and asset-liability growth.
Investment suggestion
The company's performance has achieved rapid growth in the first three quarters of 2018, sufficient on-hand orders and the efficient use of raised funds will accelerate the fulfillment of orders; the improvement of the quality of the company's projects is also expected to improve operating cash flow throughout the year. Due to the tightening of the current financing environment for the undertakers of government projects, we have lowered the forecast of net profit from 2018 to 2020 to 4.02 yuan, 6.84 billion yuan, 1.047 billion yuan (the original value is 402,8.01 yuan and 1.226 billion yuan); the EPS from 2018 to 2020 is 1.17,1.98,3.04 yuan per share respectively, and the corresponding PE is 13,7 and 5 times respectively. Based on the previous market valuation of the overall correction factors, we lowered the company's target price to 22.39 yuan / share (the original target price is 31.5 yuan / share; we select the average monthly PE-TTM of 22.39 times as the new 2018 expected EPS reasonable valuation, can get a new target price), to maintain the "buy" rating.
Risk hint: the growth rate of China's fixed asset investment is accelerating downward, and the project payback is lower than expected.