Liberal Arts Garden released its 2018 annual report: in 2018, the company achieved a business income of 2.849 billion yuan, an increase of 11.06% over the same period last year, and a net profit of 250 million yuan, an increase of 3.27% over the same period last year.

On the revenue side, Q1, Q2, Q3 and Q4 realized operating income of 414 million yuan, 966 million yuan, 745 million yuan and 724 million yuan respectively, an increase of 43.41%, 12.17%,-4.48% and 13.93% respectively over the same period last year. Affected by the deterioration of the financing environment of private enterprises, revenue declined in the third quarter and picked up in the fourth quarter. From a business point of view, the company's ecological engineering contributed 96.13% of the company's total revenue.

The company achieved a comprehensive gross profit margin of 19.30% in 2018, an increase of 0.53pct over the same period last year. The company's net profit rate is 8.76%. Compared with the decline in 0.77pct in 2017, the increase in gross profit margin and the decline in net profit margin are mainly due to the increase in expense rate and the proportion of asset impairment loss.

The proportion of companies including R & D expenses in 2018 was 2.95%, an increase of 1.07pct over the same period last year, mainly due to the rapid rise in financing costs of private enterprises in 2018, resulting in a sharp increase in financial expenses.

The net operating cash flow per share of the company in 2018 was 0.11 yuan, which was significantly better than that in 2017, mainly due to the decline in the ratio of payment to cash. From the perspective of income-to-cash ratio, the company's cash-to-income ratio and cash-to-cash ratio in 2018 were 62.09% and 55.82% respectively, up 0.32pct and-9.53pct respectively over the same period last year. The sharp drop in cash-to-cash ratio is the main reason for the improvement in cash flow.

Profit forecast: we expect the EPS of the company from 2019 to 2021 to be 0.60,0.69,0.78 yuan respectively, and the PE corresponding to the closing price on April 22, 2019 will be 14.5,12.5,11.0 times, maintaining the "prudent overweight" rating.

Risk hints: real estate regulation risk, PPP industry policy adjustment risk, newly signed orders do not meet expectations, project financing and order landing are not as expected, and cash flow deteriorates.