Events:

The company released its third quarterly report of 2018 on October 30th, 2018.2018. In the first three quarters of 2018, the company achieved operating income of 974 million yuan, an increase of 135.81% over the same period last year, a net profit of 253 million yuan, an increase of 115.48% over the same period last year, and a deduction of 255 million for non-return, an increase of 117.43% over the same period last year. Of this total, Q3 realized operating income of 321 million, an increase of 100.28%, and a net profit of 75 million, an increase of 48.1%.

Viewpoint:

Since 2016, the lighting market has benefited from the upgrading of consumption and other factors have shown explosive development. The consumption upgrading of night outing culture and the increasing demand for landscape lighting projects brought about by urban municipal investment and large-scale activities have promoted the rapid development of the lighting market in recent years. According to the data of High Engineering LED Industry Research Institute (GGII), the average growth rate of landscape lighting engineering market from 2017 to 2019 will be more than 33%, and the market size will be 72.5 billion / 97.9 billion / 132.2 billion respectively, corresponding to 445 times of the company's revenue in 2017. the market space is extremely vast.

Lighting market concentration is low, the company won the top spot on the market, is so far the only listed lighting engineering construction enterprises, will be the first to benefit from the rapid development of the market. The lighting engineering industry is a typical large and small company in the industry. as the first listed company in the industry, the company has revenue of 680 million in 2017. the market share corresponding to the above market size is only 0.9%, and there is great room for improvement in the future. Taking the company's deeply cultivated Shenzhen market as an example, in 2018 to welcome the 40th anniversary of reform and opening up, the company seized the opportunity of project release and successively won the bid for brightening projects in Futian, Nanshan District and other areas. In recent years, the company has actively extended itself, strengthened external strategic cooperation, and acquired high-potential high-quality markets such as high-quality assets and layout of three major urban agglomerations, including 55% of Yongqi Lighting and 30% of Guangming Mingzhou. It aims to achieve the national layout of the "night outing economy", especially the regional layout of East China, complete the industrial chain and enhance the overall business synergy, and further enhance business competitiveness. The two enterprises are Shuangjia qualification companies for lighting engineering, among which Yongqi is the leader of Zhejiang Lighting, which enjoys a high market share in the East China market. The net profit in 2018 is 43.4 million, and the performance commitment for 2018-2020 is not less than 50 million / 65 million / 85 million, respectively. The company acquired 55% of its equity with its own capital of 247.5 million yuan, which translates to a price-to-earnings ratio of about 9 times according to 18-year performance commitments. It is much lower than the company's current valuation and is expected to increase the level of earnings per share.

The abundance of orders accelerates performance growth, and 2018 is expected to hit a new high. The company's revenue / homing increased by 68%, 102% and 73%, respectively, in the first three quarters of 2018, with an increase of 136% and 115% respectively, including a 100% increase of 48% in the third quarter. As of the end of June, the company's on-hand orders were about 2.4 billion, corresponding to 3.5 times of the 2017 income, and the order reserve was relatively abundant.

The gross profit margin declined significantly, the control of sales expenses achieved results, and the overall profit level decreased slightly. The gross profit margin during the reporting period was 50.96%, with a decrease of 4.97 pct, which was due to the reduction of the overall premium level after the increase in the number of projects, the increase in the recovery of receivables, and the low gross profit margin of the new M & A subsidiary business relative to the parent company in the first half of the year. The sales / management / financial rate is 4.76%, 11.9% and 1.95%, respectively, with year-on-year changes of-2.26 /-0.08 / 0.67 pct. The significant reduction in sales rates is due to the company's increasing revenue and reducing expenditure since the first half of the year and strict control of costs and expenses. Net interest rate 27.41% equals minus 0.97 pct, slightly lower

The cash-to-income ratio rose synchronously, the investment cash outflow caused by the acquisition increased, and the operating capital was increased: during the reporting period, the company's cash-to-cash ratio was 32.04% and 73.6%, respectively, with an increase of 6.4 / 4.2 pct respectively. The net outflow of operating cash flow increased by 238 million with an increase of 74.9%. It is judged that it is mainly due to the expansion of business scale. Lighting construction is also a capital-intensive industry, and most projects need to be funded for construction. The net outflow of investment cash flow increased by 1573% by 274 million, mainly due to the acquisition of subsidiaries. The net cash flow of fund-raising increased significantly by 640% in 1.149 billion, which was caused by the private placement of shares and the expansion of financing scale. The company's 2018.4 net increase is about 863 million, of which 550 million is used to supplement the lighting project, 200 million is used for the LED R & D base and exhibition center project, and 113 million is used for the contract energy management working capital project, which fully ensures the working capital and provides a strong driving force for the company to further expand its business scale. the asset-liability ratio at the end of the reporting period is 46.36% with a decrease of nearly 2 pct.

Conclusion:

During the reporting period, the company maintained high performance growth and achieved a revenue / return increase of 136% and 115%, mainly due to the blowout development of the lighting market and the active layout of the company's extension. The gross profit margin declined significantly at the same time the cost control achieved results, the overall profit level decreased slightly. Business expansion and asset acquisition led to an increase in operating and investment cash flow respectively, resulting in a substantial increase in fund-raising cash flow. We believe that the company will focus more on the high-potential high-quality markets such as the three major urban agglomerations in the order structure in the future, which is conducive to resisting macroeconomic risks. It is estimated that the company's operating income from 2018 to 2020 is 1.33 billion yuan, 2.236 billion yuan and 3.343 billion yuan respectively; earnings per share are 1,1.63 yuan and 2.32 yuan respectively, corresponding to PE 14.8x, 9x and 6.3x respectively, maintaining the "recommended" rating.

Risk hint: government municipal investment is less than expected risk, management risk, capital turnover risk