Main points of investment
Gross profit margin fell sharply, and net profit fell by 6%
The company recorded revenue of 1.291 billion yuan in 2018, an increase of 11.7% over the same period last year. Affected by the decline in gross profit margin of the transmission and distribution business, the comprehensive gross profit margin fell 6.4 percentage points to 33.7%, and the net profit of shareholders belonging to the parent company was 183 million yuan, down 5.9% from the same period last year. Earnings per share are RMB 11.34 cents, with a final dividend of HK3 cents per share.
The new UHVDC project is stagnant, and the delivery of flexible DC project is normal:
During the period, power transmission and distribution business totaled 736 million yuan, an increase of 6 percent over the same period last year. After large-scale construction in 2015-2017, UHV entered a short period of stagnation in 2018. Only in December, two UHVDC projects in Qinghai-Henan and Shaanxi-Hubei were approved and started. The revenue of UHVDC transmission decreased by 70% to 142 million yuan compared with the same period last year, while the revenue of flexible DC transmission benefited from the large-scale delivery of flexible orders in Zhangbei, which increased by 280% to 472 million yuan. Other transmission and distribution business products, including power capacitors and smart grid online monitoring, maintained a good growth trend, with an increase of 29% to 121 million yuan compared with the same period last year. The gross profit margin of the power transmission and distribution sector also decreased by 13 percentage points to 35% compared with the same period due to the decrease in the proportion of UHV income with high gross margin and the increase in the share of soft and straight income.
The rapid growth of electrified traffic and the steady growth rate of industrial and other business:
In fiscal year 2018, the electrified transportation business recorded revenue of 91 million yuan, an increase of 109% over the same period last year, mainly due to the rapid growth of railway freight electric locomotives; during the period, rail transit vehicles increased by 158% to 76 million yuan compared with the same period last year. Rail transit power supply system and new energy vehicles increased by 7% and 9% to 1.6 million and 14 million yuan, respectively. Industrial and other business income was 464 million yuan, an increase of 10% over the same period last year. Among them, metal smelting was affected by policy factors, and the early digestion of projects reduced the number of reserves and start-up projects in 2018, affecting the current income by 51% to 138 million yuan compared with the same period last year. Other businesses performed well.
Maintain a highly recommended rating with a target price of HK $1.74:
The stagnant construction of UHV projects has a great negative impact on the company's performance in fiscal year 2018. However, with the launch of a new round of UHV construction and the Railway General Administration's three-year freight incremental action plan, we expect the company's performance to be greatly improved in 2019. It is estimated that from 2019 to 2021, the company's EPS will be 0.15,0.20 and 0.26 yuan respectively. With reference to historical valuations, the company will be given a target price of HK $1.74, corresponding to 10 times PE in 2019, which has room for an increase of 34.9% over the current price, and maintains a highly recommended rating.
