Summary of the report
Benefiting from the construction of the integration of the Yangtze River Delta, rail transit business is expected to enter a rapidly rising channel: according to our statistics, the 2018Q4 Development and Reform Commission has cumulatively approved 624.7 billion of the key projects in the Yangtze River Delta, accounting for about 57% of the total investment approved by the Development and Reform Commission, highlighting the strategic upgrading of the integration of the Yangtze River Delta and its important position in the infrastructure deficiency board. As 1) the space for development is the broadest, 2) the applicant cities are usually first-and second-tier cities with dense population and good financial strength, and 3) 4 Yangtze River Delta rail transit projects have been approved by 2018H2 countries, and project construction is expected to accelerate in 2019H2, rail transit is the most promising infrastructure sub-plate in the Yangtze River Delta region. As the core benefit of the company as the regional leader of rail transit in the Yangtze River Delta (43% of rail transit orders), rail transit business is expected to enter a rapid rising channel; municipal business is expected to grow steadily: considering that 1) the construction of the integration of the Yangtze River Delta will further stimulate the construction of industrial parks, industrial production rooms and municipal centers. 2) due to the increasing demand for interconnection in the Yangtze River Delta, we expect that the demand for highway reconstruction in the city will also grow steadily during the 13th five-year Plan period, and 3) the environmental management of the Yangtze River Delta basin and the construction of sponge cities will boost the demand for water supply, drainage and related projects. we believe that the demand for municipal engineering construction in the Yangtze River Delta will remain strong during the 13th five-year Plan period, so as to support the steady growth of the company's related business.
Deep ploughing East China, abundant orders on hand, high certainty of growth: in 2018, 80% of the company's revenue came from East China, and the asset-liability ratio remained at a good level of less than 80%. At the same time, by the end of 2018, the company has outstanding orders of 26.63 billion yuan, which is 2.7 times of the company's 2018 income, and the order security is adequate, so we think that the certainty of the company's growth in the next two years is high. At the same time, the company's valuation is at the bottom of history, and considering the high certainty of growth, we think there is plenty of room for repair.
Investment suggestion: the company is expected to make a net profit of RMB 382 million in 2020, an increase of 27.1%, 15.7%, and 0.35, respectively, over the same period last year. Give the company 2019e net profit 18x PE valuation with a target price of 6.24yuan, with a "buy" rating for the first time
Risk hint: the recovery of infrastructure investment is slower than expected and the gross profit carry-over is lower than expected.