Main engineering construction business, deep ploughing the Yangtze River Delta region
The company is mainly engaged in urban roads, bridges, viaducts, track crossings, sewage treatment, highways, housing construction and other projects, and has expanded to the field of investment and real estate. The company's business development area is currently based in the Yangtze River Delta region, and gradually expanding to the central and western regions. At present, most of the winning projects are concentrated in Hangzhou, Taizhou and Shanghai. The company has obtained a number of qualification certificates issued by the Ministry of Construction, has qualified advantages, and the construction project has won many honors, and has established a good reputation in the municipal and highway construction market in the Yangtze River Delta. It has gained a competitive advantage in the municipal engineering construction business.
Orders continue to hit new highs, and order conversion revenue is expected to accelerate.
After 2018, the development of the integration of the Yangtze River Delta is accelerating. In November 2018, President Xi Jinping delivered a keynote speech supporting the development of regional integration in the Yangtze River Delta and becoming a national strategy. At the end of 2018, the National Development and Reform Commission extensively approved rail transit projects in the Yangtze River Delta, with a total investment of about 700 billion yuan. The company's business has long been based on the Yangtze River Delta urban agglomeration, has a single order advantage in the Yangtze River Delta region, is expected to benefit from the accelerated development of the Yangtze River Delta integration, municipal, highway, rail transit orders ushered in further growth. Hangzhou will host the Asian Games in 2022, and it is necessary to build and improve the infrastructure before the Asian Games. At present, the construction gap of Hangzhou subway is 270km, and the investment scale is about 200 billion yuan. The company accounts for more than 60% of rail transit orders in Hangzhou, and rail transit orders are expected to continue to grow in the next two years. In 2018, the company signed 8.204 billion new orders, 77% of which were orders from Hangzhou. The growth rate of revenue of the company is significantly lower than that of orders in recent years. The integration of the Yangtze River Delta and the Hangzhou Asian Games are expected to accelerate the conversion of orders. It is expected that the rate of income transformation will increase significantly in 2019 and 2020, achieving about 5 billion and 6.4 billion revenue respectively, an increase of about 25% and 29% respectively.
The investment profit is expected to increase significantly in the first quarter, and the proportion of people in charge will increase the average price by 2.89 yuan.
Through the 2018 company performance forecast, we expect Shaanxi State Investment in 2018. Zhenghao 71 Trust Project lost about 250-300 million yuan for the whole year. The trust scheme is 2.4 billion in size and leveraged, and the company has a 62.5 per cent stake. With the stock market improving in 2019, by calculating the average return of Jinglin asset products in the first quarter of 2019, we think that if the stock market maintains the level of the first quarter, the trust plan is expected to make a profit of about 250 million to 300 million yuan for the company in 2019. From 2018 to 2019, the actual controller of the company increased its holdings of 400 million market value shares, accounting for 8.56% of the total share capital, with an average price of 2.89 yuan, which is close to the current price of the company's stock price.
Investment suggestion: it is expected that the performance in the first quarter will be greatly reversed. Giving the company a "buy" rating, the integrated construction of the Yangtze River Delta and the holding of the 2022 Asian Games in Hangzhou will release a lot of traffic construction and infrastructure demand. Hangzhou rail transit business is developing rapidly, and it is expected to accelerate the conversion of orders into revenue. According to the performance of the stock market in the first quarter of 2019, trust products are expected to generate 250 million to 300 million yuan in profits for the company in 2019, so the company's profits are expected to improve in 2019. We expect 2019Q1 to achieve a net profit of about 300 million, with a significant reversal in performance. It is estimated that the company's 2018 EPS in 2020 will be 0.02,0.34,0.38 yuan per share, and the corresponding PE will be 165,8 and 8 times. Cover for the first time, giving the company a "buy" rating. The target price is 3.73 yuan.
Risk hint: the growth rate of fixed asset investment is declining; the project progress is not as expected; the return of the trust plan invested by the company will fluctuate greatly with the stock market.
