The performance is lower than expected, and the profit forecast should be lowered appropriately.
In the first three quarters, the company realized revenue of 1.104 billion yuan (+ 144.7%) and net profit / deduction of non-return net profit of 154,000,000 yuan (+ 262.5% Universe 276.6%), which was lower than the market and our expectations. We judge that the lower-than-expected profitability of the company is mainly due to the drop in the price of water treatment agent by-products and the lower-than-expected progress of the company's engineering project. We appropriately reduce the company's profit forecast, and it is estimated that the EPS of the company from 2018 to 2020 will be 1.35yuan (1.11pm) (1.34max) respectively. With reference to the comparable company's average Pacer E 18x in 2018, the company is given 18-20xP/E in 2018, corresponding to the target price of 16.74-18.60 yuan per share, maintaining a "buy" rating.
Revenue decreased in the third quarter compared with the previous quarter.
18Q3 achieved an income of 337 million yuan (year-on-year + 135.2%, month-on-month-22.8%), a net profit of 45 million yuan (+ 218.8%), and a non-return net profit of 43 million yuan (+ 233.2%). The company's revenue declined in the third quarter, with 18Q3's gross profit margin of 37.81%, an increase of 4.8pct over the same period last year and 2.1pct on a month-on-month basis. We judge that as the company's main product HEDP still maintains a relatively high demeanor, the decline in revenue may be due to the following two reasons: 1) the by-product price of water treatment agent has dropped significantly; 2) the start of the company's engineering business is not as expected. We judge that the prosperity of HEDP, the company's main product in the fourth quarter, is expected to remain at a high level, and the progress of construction of Zhongxu Construction in order to fulfill its performance commitment is expected to accelerate, and the annual performance is expected to maintain a high growth rate.
The rebate improved significantly compared with the same period last year, and the asset-liability ratio increased.
18Q3 rebate significantly improved, the company received 340 million in cash for selling goods and receiving services, with a cash-to-cash ratio of 101% (year-on-year + 30.3pct); the cash-to-cash ratio increased. 18Q3 paid 174 million in cash for goods and services, with a cash-to-cash ratio of 52%, an increase in 5.5pct over the same period last year. 18Q3's asset-liability ratio is 56.7% (month-on-month 18 mid-year report + 1.16pct). The increase in asset-liability ratio is mainly due to the completion of the layout of the whole industrial chain of industrial water at the end of the year and the increase of interest-bearing liabilities to promote the start of the project. The synergy effect of the whole industry chain of the company is strong, the main industry continues to contribute stable operating cash flow to support the business expansion in the middle and lower reaches, and the regional coordination of subsidiaries is obvious.
Appropriately downgrade profit forecast and maintain "buy" rating
The company completed the layout of the whole industrial chain of industrial water (upstream pharmaceuticals + middle reaches project + downstream operation / operation and maintenance) at the end of 17, the performance of the first three quarters of 18 continued high growth, and the synergy effect of the whole industrial chain is gradually reflected. The company intends to raise convertible bonds to strengthen the main business, after the project is put into production and stable operation, it is expected to contribute 150 million yuan in net profit every year, and there is a broad space for growth in the future. We appropriately lowered the company's profit forecast. We estimate that the EPS of the company from 2018 to 2020 will be 0.93, 1.13, 1.35 (1.11, 1.34 and 1.61 yuan, respectively). With reference to the comparable company's average Pacer E 18x in 2018, the company is given 18-20xP/E in 2018, corresponding to the target price of 16.74-18.60 yuan per share, maintaining a "buy" rating.
Risk tips: Tongsheng environment / Zhongxu construction performance commitment has not been completed; the rapid expansion of investment projects worsens cash flow; the schedule of production expansion is lower than expected.