Key points of investment:

Incident: The company released its 2018 annual report. It achieved revenue of 397 million for the whole year, an increase of 3.97%, a net profit of 35 million yuan, an increase of 1.89%, and a decrease of 49.87% after deducting 12 million yuan from the non-return mother;

A leading enterprise in green building innovation and practice. The two main business lines go hand in hand and have strong synergies. The company has been deeply involved in the field of green construction for nearly 20 years. It has Class A qualifications in urban and rural planning, design, supervision, consulting, etc., has accumulated innovation and outstanding empirical capabilities. It has undertaken more than 100 national projects at all levels, participated in more than 100 national standards and regulations at all levels, completed more than 100 national demonstration projects, has 80 patents and 20 computer software copyrights, and has established extensive cooperation with well-known institutions at home and abroad such as Berkeley and Tsinghua. Currently, the company has clarified the two business chains of green ecology (urban planning, architectural design, EPC, etc.) and green housing (public trust services and green building consulting), which are expected to enhance business synergies. During the reporting period, the revenue share after strengthening the multi-business portfolio service model reached 16%.

The high-profit public trust consulting business is growing rapidly. The abundance of EPC orders strongly supports performance, and winning the bid for the Xiong'an project expands market influence. During the reporting period, design/trust/planning/consulting/EPC management revenue was 106 million (+3%) /104 million (+12%) /76 million (-19%) /052 million (+11%) /33 million (new), gross margin was 39.75% (+0.2 pp)/49.62% (+0.4 pp)/40.98% (+0.9 pp)/42.49% (+0.6 pp)/24.08%. Among them, the green building consulting business reversed the recent downward trend after integrating with other businesses to improve competitiveness Public trust has benefited from the steady growth achieved by supervising Xiong'an Laboratory in developing new markets. By region, the revenue of South China/East China/North China was 293 million (-2%) /40 million (+55%) /0.4 billion (+50%), accounting for a total of 94%. The company achieved a breakthrough in developing EPC business for two consecutive years, winning more than 1 billion contracts. Winning the bid for the Xiong'an Business Service Center Full Process Engineering Consulting Service Project (189 million) during the reporting period helped the company further expand its market influence;

The growth rate of performance declined, increased upfront investment led to an increase in rate, a decline in profitability, a decline in cash flow, and an increase in debt ratios. It is expected that there will be good results in the later stages. The revenue/return growth rate during the reporting period was 3.97% (-6.4 pp)/1.89% (-5.9 pp). The decline in growth was due to large upfront investment in new markets, platform development, and subsidiaries. It is expected that future maturing layouts and the release of sufficient orders will accelerate performance. The gross profit margin was 38.24% (+0.2pp), and the sales/management/finance/period rate was 14.47% (+2.1pp)/14.88% (+2.7pp)/0.76% (-0.2 pp)/30.11% (+4.6pp). The increase in sales expenses was due to market development, and the increase in management expenses was due to the expansion of business scale and a sharp increase of 55 percent in non-operating income; the net interest rate was 8.32% (-0.6 pp); the current payout ratio is 108.37% (+11pp) )/72.26% (+34pp), operating cash flow of 43 million and a decrease of 56%, reflecting an increase in expenses such as procurement, remuneration, and project payments; the debt ratio was 47.6%, an increase of 8.4 pp and a reduction of 3.1 pp;

Profit forecast and investment rating: The company is expected to achieve revenue of 498 million yuan, 611 million yuan and 735 million yuan respectively from 2019 to 2021; the net profit of the mother is 42 million yuan, 51 million yuan and 0.6 billion yuan respectively; EPS is 0.29 yuan, 0.35 yuan and 0.41 yuan respectively, and the corresponding PE is 92X, 75.8X and 64.5X respectively. First coverage, giving a “neutral” rating.

Risk warning: 1. Order execution falls short of expectations; 2. Market development risk; 3. Financial risk.