Brief comment on performance
On December 24, the company issued the 2018 restricted Equity incentive Plan (draft).
Business analysis
1) the company intends to implement equity incentives through private placement, granting 12.97 million shares to 379 incentive targets (including company directors, executives and core employees, accounting for 6% of the total number of employees), accounting for about 3% of the company's share capital, with a grant price of 5.86 yuan. 2) the time for unlocking the restricted stock is 24 months from the date of grant, and the restriction will be lifted in three phases within the next 36 months. The unlocking condition is based on 2017 revenue, the compound growth rate of revenue is not less than 8% and not lower than the 75 quartile of the target enterprise, the weighted average ROE is not less than 9% and not lower than the 50 quartile of the target enterprise, and the R & D investment of subordinate high-tech enterprises accounts for no less than 3% of its revenue. 3) the amortized expenses of this equity incentive from 2019 to 2023 are 0.22 billion yuan, 0.26 yuan, 0.16 yuan, 0.08 billion yuan, respectively, which has a limited impact on the company's performance.
Equity incentives stimulate the vitality of the company, profitability is expected to improve. 1) the company is the leader of domestic architectural design and has participated in the design of 90% of the super high-rise buildings under construction and under construction in China. However, the company's gross profit margin is much lower than the average level of the housing design industry. In 2017, the gross profit margin of the company's engineering design business was only 35%, while that of similar companies Zhongheng design / enlightening design / academy of construction / Shanding design engineering business reached 42%, 44%, 40%, 43%. 2) the company's management fee is also higher than the industry average, but shows a downward trend, reaching 16% in the first three quarters of 2018. Similar companies Zhongheng design / enlightening design / academy of construction sciences / Shanding design management fee is about 11%, 15%, 14%, 12%. 3) We believe that equity incentive is expected to fully stimulate the vitality of management and improve the operating efficiency of the company.
Huajian Digital Chuangchuang: BIM technology pioneer, equity incentive + mixed reform + employee stock ownership fully stimulate motivation. 1) BIM technology can improve the integration of construction projects and improve the efficiency of the entire project life cycle. The BIM utilization rate of the US / UK / Singapore construction industry reaches 80%, 74% and 90%, while the domestic utilization rate of only 10% is still in its infancy, so there is a broad future. 2) Huajian Digital Chuang, a wholly owned subsidiary of the company, is a pioneer in BIM technology in the industry. On November 29, 2018, Huajian Digital Chuang was included in the pilot list of employee shareholding of local state-owned mixed ownership enterprises in Shanghai. This equity incentive emphasizes the assessment of R & D investment in high-tech enterprises. Xu Zhihao, executive director of Huajian Digital Chuang, is proposed to grant 190000 restricted shares (1.49% of the restricted stock) We believe that R & D investment can ensure the technical strength of Huajian Digital Innovation in the long run, and equity incentive + mixed reform + employee stock ownership will stimulate vitality to lay a solid foundation for the development of the company.
Profit forecast and valuation
We estimate that the company's net return profit from 2018 to 2020 will reach RMB 4400.53 million, maintaining the target price of RMB 15.
Risk: engineering business gross profit margin decline, business concentration risk, inventory price decline, accounts receivable impairment risk.
