The annual performance was slightly lower than expected, but the performance increased significantly after deducting financial investment losses.
China Longgong announced its 2018 results, with an annual operating income of 11.87 billion yuan, an increase of 32.0% over the same period last year, and a net profit of 1.14 billion yuan, an increase of 9.4% over the same period last year, slightly lower than our forecast of 1.26 billion yuan. however, the company's profit after deducting financial investment losses was 1.32 billion yuan, a sharp increase of 55.9% over the same period last year. The company's earnings per share in 2018 was 0.27 yuan.
The growth of product sales is strong, and the growth rate of sales of leading products is higher than the industry average.
Sales of all major categories of the company's products increased in 2018. Of this total, the revenue of wheel loaders was 6.15 billion yuan, up 27.5 percent over the same period last year; the revenue of excavators was 2.11 billion yuan, up 58.8 percent; the revenue of forklifts was 2.31 billion yuan, up 26.4 percent; the revenue of road rollers was 160 million yuan, up 33.6 percent over the same period last year; and the revenue from spare parts was 1.13 billion yuan, an increase of 27.4 percent. The growth rate of loaders is 7 percentage points higher than that of the industry, and that of excavators is 14 percentage points higher than that of the industry.
Gross profit margin is constrained by rising costs, but is expected to pick up in the future
In 2018, the company's comprehensive gross profit margin was 23.0%, down 3.6 percentage points from the same period last year, mainly due to the increase in the price of raw materials and the improvement and upgrading of spare parts; as the products upgrade to the "fourth grade" or above, the gross profit margin is expected to pick up in the future. The net profit margin was 9.6%, down 2.0 percentage points from a year earlier, mainly due to large losses on investment in financial products, partly offset by lower expense rates and income tax rates.
Solid balance sheet, strong operating cash flow, good dividend payout record
In 2018, the company's debt ratio was only 42%, cash and financial assets totaled 5.17 billion yuan, and operating cash flow reached 810 million yuan. The company's dividend payout rate exceeded 60% in 2018, an all-time high.
Maintain a "buy" rating
After excluding the investment losses on financial products, the company's core profit is in line with expectations. Since the beginning of the year, the construction machinery industry has continued to recover, and the sales of some products have exceeded expectations. We raised the company's sales forecast for excavators and other products, lowered the company's tax rate forecast to 15% (an increase in tax breaks for R & D expenses), raised the company's 19-20 EPS forecast to 0.36 EPS 0.42 yuan (formerly 0.34 pm 0.37 yuan), and introduced a 21-year EPS forecast of 0.47 yuan. With reference to the average of 9 times PE (TTM) in the past year, the company is cautious to give the company 8 times PE in 19 years, raising its target price to HK $3.40 and maintaining its "buy" rating.
Risk hints: downside risk of solid investment growth, raw material cost fluctuation risk, exchange rate fluctuation risk
