Main points of investment
Event: quarterly results increased by 14%, operating cash flow improved
According to the company's three-quarter report for 2018, from January to September 2018, the company achieved revenue of 14.79 billion yuan, down 2.7% from the same period last year, and achieved a net profit of 195 million yuan, an increase of 14.0% over the same period last year. The company achieved a performance of about 33 million yuan in a single quarter in the third quarter, down 41% from the same period last year.
The company's cash flow situation has improved. From January to September, the company's net operating cash flow reached 124 million yuan, an increase of 34.8% over the same period last year. The financial expenses of the company in the first three quarters reached 1.17 billion yuan, an increase of 69.5% over the same period last year, mainly due to the increase in interest expenses. At the same time, the company's long-term loans reached 16.08 billion yuan, up from 66. 5 percent at the end of 2017. 700 million yuan increased by 140%, and the higher borrowing caused the company to bear a larger financial burden and engulf part of the profits.
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 three quarters was 82 million yuan, a sharp drop of 50% 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, the 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 will be 0.07 + 0.15 + 0.20 yuan respectively, and the corresponding PE will be as much as 46-22-16. 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.