2018 results fell short of expectations Oriental Garden announced 2018 results: operating income of 13.29 billion yuan, a year-on-year decrease of 12.7%; net profit of 1.60 billion yuan, a year-on-year decrease of 26.7%; 4Q18 achieved revenue of 3.64 billion yuan, a year-on-year decrease of 44.7%, and net profit of 627 million yuan, a year-on-year decrease of 52.7%; due to a sharp increase in expenses during the period, performance fell short of the Express Report and our expectations. The company's gross margin increased 2.5ppt to 33.5% year-on-year after excluding taxes, mainly due to a significant increase in municipal garden gross margin of 6.7ppt; management expense ratio increased 4.0ppt year over year (mainly due to increased business scale in the first half of the year), R&D expenses increased 1.4ppt year over year (due to increased R&D investment), financial expense ratio increased 2.6ppt year over year (mainly due to increased financing costs), and annual net interest rate decreased by 2.3ppt to 12.0% year on year due to the increase in the period cost rate. Net operating cash inflows for the year declined sharply from $2.87 billion to $0.5 billion, mainly due to changes in working capital. Development trends Business growth is slowing due to tight funding. In 2018, in the context of tight funding, the company took the initiative to slow down the pace of business acceptance and execution. 1) Construction revenue fell 13.1% year on year, mainly due to the slowdown in PPP project execution; among them, municipal garden/water environment/global tourism revenue increased by -31%/-16%/+88% respectively, and the global tourism business continued to grow strongly under a low base; 2) Solid waste disposal revenue fell 42% year on year, mainly due to technical improvements and project sales. The pressure to repay debt has eased somewhat. Since 2H18, the company has relieved financial pressure through various methods such as bank loan renewals, bond issuance, introduction of war investment, and issuance of preferred shares. From mid-2018 to the end of the year, the company's net debt ratio decreased by 4ppt to 31%; at the same time, the debt structure was optimized, short-term loans and short-term payable bonds were reduced, while long-term loans increased. The company's bonds to be matured and paid in 2019 did not exceed 3.2 billion yuan (including ultra-short loans of 2 billion yuan and corporate bonds of 1.2 billion yuan, assuming investors all chose to resell them), and the peak of debt repayment has passed. We expect revenue growth to resume in 2H19 as the company's debt repayment pressure eases. Profit forecast Since it will still take some time to repair the company's balance sheet, we lowered the 2019e net profit forecast by 21% to 1.75 billion yuan; at the same time, we introduced the 2020e net profit forecast of 1.95 billion yuan. The valuation and the proposed company's current price correspond to 12.4 times P/E in '19, maintaining the recommended rating. Due to profit forecast adjustments, the target price was lowered by 20% to 9.8 yuan, corresponding to 15 times P/E in '19 and 21% of space. Risk cash flow deteriorated further, and implementation of ongoing projects fell short of expectations.