Main points of investment
The performance is in line with expectations, and the business is more focused: the company achieved revenue of 10.5 billion yuan in 2018, an increase of 2.5% over the same period last year, in line with expectations; the net profit returned to the home was 129 million yuan, an increase of 52.9% over the same period last year, which was lower than expected, mainly due to a decline in gross profit margin; the company achieved a rebate of 11 billion yuan, with a net operating cash flow of 684 million yuan, showing a net inflow for three consecutive years. Among them, the income of the three major industries of heavy pressure vessels / metallurgical sets / nuclear energy equipment was 2.96 billion yuan, an increase of 41.6%, 19.2% and 3.7% respectively, and the proportion of the three main industries increased to 62% from 51% of the previous year. On the other hand, other businesses such as trade and general engineering contracts took the initiative to contract, falling to 2.65 billion yuan from 3.84 billion yuan in the previous year. The company focuses on high-end products such as pressure vessels and metallurgical sets, and the overall profitability is still in the recovery stage. In addition, the company announced revenue of 2.48 billion yuan in the first quarter, down 11.3% from the same period last year, and net profit of 23.81 million yuan, down 11.7% from the same period last year.
The gross profit margin was under pressure, and the newly signed orders continued to grow: the company's comprehensive gross profit margin was 15.8%, down 1.3 pct from the previous year; due to the significant increase in raw material and energy prices last year, manufacturing costs increased, and the gross profit margin of heavy pressure vessels / metallurgical sets / nuclear energy equipment decreased by 5.3/3.0/5.5pct respectively. The company has signed a new order of 13 billion yuan, which has maintained a trend of continuous growth in the past three years, among which heavy pressure vessels and nuclear energy equipment are long-cycle orders, and their gross profit margin is relatively high compared with other products. With the increase in the proportion of the three major businesses, the company's overall profitability will continue to be improved.
Nuclear power business is expected to usher in an inflection point: there are four Hualong No. 1 units under construction in China, namely, No. 5 Fuqing No. 6 unit of CNNIC, and No. 3 no. 4 unit of Guangzhou Nuclear Fangchenggang. The company undertakes the manufacturing contract of all 4 pressure vessels, of which Fuqing No. 5 and No. 6 will be delivered in 2017 and 2018 respectively. The gross profit margin of the company's nuclear power equipment business is significantly higher than that of other products, which is a more important source of profit for the company. The company added 2.1 billion yuan in nuclear power orders in 2016, mainly delivering stock orders in 2018 and 2019, and is expected to usher in batch review of nuclear power units in 2019. Hualong No. 1 as the main model, the company is expected to win the share of major pressure vessels, which will bring significant increments to the company's nuclear power business in the next three years.
Actively explore the "Belt and Road Initiative" market: the company's overseas market achieved revenue of 131 million yuan, an increase of 158% over the same period last year. The company actively participated in the "Belt and Road Initiative" construction, signed the Mexican hot rolling project, COSCO Petrobras pressure vessels, entered the Mobil oil supplier catalogue, won the bid for all 17 hydrogenated vessels in Singapore, and other projects; the company is expected to use "Belt and Road Initiative" to gradually open overseas markets and further enhance the influence of the brand.
Investment suggestion: we maintain the company's revenue forecast, but considering that the prices of energy and raw materials are still relatively high, which affects the company's profit release to a certain extent, we appropriately reduce our profit forecast. The company's 2019-2021 operating income is expected to be 12.3 billion yuan, 15.2 billion yuan and 18.5 billion yuan respectively, and the net profit of returning mother is 368 million yuan, 614 million yuan and 851 million yuan respectively. In 2019, PB and PS were 2.4and 2.2respectively, both at historic lows, maintaining a "buy-A" rating.
Risk hints: the investment progress of refining and chemical integration projects is not as expected; the replacement of iron and steel capacity is not as expected, resulting in a decline in procurement demand for metallurgical equipment; nuclear power approval progress is not as expected; raw material price fluctuations affect enterprise profitability, and so on.