Investment suggestion
The company announced its 2018 results, with revenue of 10.994 billion yuan, an increase of 17.5% over the same period last year, and net profit of 644 million yuan, down 48.53% from the same period last year. The lower-than-expected performance is mainly due to: 1) the provision of large accounts receivable bad debt losses, resulting in asset impairment losses of 265 million yuan; 2) a substantial increase in expenses during the period; and 3) a decline in gross profit margin. We downgraded to "neutral". The reasons are as follows:
Profitability continues to decline. The gross profit margin of the two important businesses, environmental protection equipment and consulting / municipal construction, which accounted for 40 per cent of revenue, fell by 13.07/4.06ppt to 40.37 per cent and 25.73 per cent respectively due to the increase in raw material prices and labor costs, dragging down the company's comprehensive gross profit margin by 3.1ppt to 26.9 per cent compared with the same period last year. At the same time, the cost increased rapidly during the period: the 0.6/1.0/1.0ppt rate of sales / finance / "management + R & D" increased to 2.3%, 5.7% and 9.9%, respectively.
The contraction of PPP business has put pressure on municipal engineering revenue. Affected by the clearance of PPP inventory and the tightening of the financing environment in 2018, the company shrank the scale of PPP projects, resulting in a decline of 23.7% in municipal engineering business to 2.41 billion yuan. We expect the company's municipal engineering business to remain under pressure in the short term.
The pressure of operating cash flow is great. The company's operating cash flow decreased by 290 million yuan to-743 million yuan, showing a continuous deterioration. Considering that the company has a large number of solid waste projects under construction, and the accounts receivable of sanitation, renewable resources and other businesses are relatively high, we believe that the company's future business promotion will still rely on a lot of financing.
The valuation level is relatively high. At present, the company's share price is 24.5 times higher than that of comparable companies in the industry, which is 24.5 times higher than that of comparable companies in the industry, and faces the pressure of valuation adjustment later.
What is the biggest difference between us and the market? Be more cautious about the company's cash flow situation.
Potential catalyst: the financing environment shrinks and the company's business is not as good as expected.
Profit forecast and valuation
As the company's orders did not advance as expected, the cost increased more during the period. We cut the profit estimate of 19e by 54% to 770 million yuan, and the profit of 20e by 85.1 billion yuan. The company's current share price corresponds to a 19/20eP/E of 22.2 times Pamp E, and the target price is reduced by 12% to 13 yuan. The corresponding 19/20eP/E is 22 times Pmax E, which is 2% lower than the current downside.
Risk
Upside risk: the introduction of Xiongan Group caused the company's order growth to exceed expectations. Downside risks:
Policy risks; tighter financing environment.
