The company recently released its 2018 annual report, with operating income of 953 million during the reporting period, an increase of 66.47% over the same period last year, and net profit of 55 million, an increase of 124.39% over the same period last year. The comments are as follows:
Based on the construction of high-tech zones to promote the high growth of orders, the company's engineering business will continue to benefit from 2.52 billion yuan in 2018, an increase of 221.84% over the same period last year, including 68.05% for housing projects, 25.05% lower than the same period last year, 31.39% for municipal projects, an increase of 26.92% over the same period last year, and 3.698 billion yuan of orders on hand for the whole year, an increase of 223.8% over the same period last year. Since 2017, the company has decided to be based on the construction of high-tech zones, especially to grasp the opportunity of airport new town construction. In 2018, the construction of airport new town has been accelerated, and the company's engineering business orders have increased significantly. A number of major projects have been awarded so far in 2019, and the company's orders are expected to increase further in 2019.
The revenue of the engineering business is growing rapidly, and the gross profit margin has increased somewhat. This year's trend is expected to continue the company's business income of 953 million yuan in 2018, an increase of 66.47% over the same period, of which the project revenue is about 800 million yuan, nearly double that of the same period last year. With the gradual landing of the company's existing projects and the promotion of the construction of high-tech zones, the scale of construction business is expected to continue to increase in 2019. The gross profit margin of the company's construction business was 6.62%, an increase of 2.56 percentage points over the same period last year, mainly due to the high gross profit margin of municipal business and the company's emphasis on improving management capacity and controlling costs, thus improving the efficiency of the company. In 2019, the company plans to continue to improve the quality of management, and gross profit margin is expected to increase further. The PPP Investment Company invested by the company has been implementing projects one after another, and it is expected that this year's PPP project is expected to support the continued increase in gross profit margin of the construction business and contribute part of the investment income.
Due to the scale effect, the expense rate during the period decreased significantly compared with the same period last year, and the return net profit increased significantly by 12.53%, and decreased by 7.39% in the same period, of which the sales expense rate was 11.42%, down 9.12% from the same period last year. The management expense rate was 5.55%, down 2.32% from the same period last year, mainly due to the relatively large rigidity of management expenses relative to operating income, which was lower than revenue growth. The financial expense rate is-4.44%, which is mainly the interest income from the company's bank deposits in 2018. The net profit of the parent was 55 million yuan, an increase of 124.39% over the same period last year. During this period, the government withdrew the development rights of the company's holding subsidiary in the Zhougongshan Hot Spring Development Zone in Ya'an and gave compensation of about 130 million yuan, turning back more asset impairment. After deducting non-recurring gains and losses, the net profit was 21 million, an increase of 204.45 per cent over the same period last year.
Business accelerates and operating cash flow expands.
The cash-to-income ratio in the reporting period was 0.6874, down sharply from 1.4766 in the previous year, and 0.4557 in cash-to-cash ratio, also down from 0.8081 in 2017. The net cash flow from operating activities increased by 267 million compared with the previous year, mainly due to the increase in margin outflow from the subsidiary Bite futures trading and the fact that part of the revenue from the engineering business did not receive cash during the reporting period, but it matches the speed of the company's business expansion. In 2019, the company plans to issue non-public shares, and intends to use the raised funds for the construction of the airport new town project to ease the financial pressure.
Investment suggestion
The company fully seizes the opportunities such as the construction of Chengdu Tianfu International Airport New City. with the gradual landing of the project in hand, the company's engineering business is expected to enter a comprehensive acceleration phase in 2019. We maintain the EPS of 0.34,0.62,0.99 yuan per share from 2019 to 2021, and maintain the "buy" rating. Taking into account the persistence of the company's growth (only 0.36x PEG in 19 years) and the recent repair of the comparable company's valuation, there is room for repair. We raise the target price to 13.5 yuan (the original target price is 10.63 yuan), corresponding to PEG0.43 times.
Risk hint: the recovery of the project money is not as expected, and the project progress is not as expected.