Event description

According to the annual report released by the company in 2018, the company achieved operating income of 2.491 billion yuan in 2018, an increase of 37.77% over the same period last year. The net profit of shareholders belonging to listed companies was 103 million yuan, down 64.56% from the same period last year. Net profit after deducting non-recurrent profit and loss was 74 million yuan, down 73.14% from the same period last year.

Event comment

The growth of the two main sectors of saving irrigation and gardening is stable. In 2018, the revenue of the company's ecological water-saving operation service reached 1.576 billion yuan, an increase of 26.07% over the same period last year, and the revenue of garden environmental science and technology services reached 873 million yuan, an increase of 61.66% compared with 2017. The business of the company's garden environmental science and technology service plate also controls the subsidiary Northern Garden to undertake, considering that the Northern Garden was consolidated in September 2017, the revenue of the 2017 consolidated statement does not reflect its annual revenue, according to the company's announcement on the implementation of debt-to-equity swap to Jinglan Northern Garden (Tianjin) Co., Ltd., we can know that the revenue of Northern Gardens reached 795 million yuan in 2017, and the revenue growth rate of Northern Gardens was 9.73% in 2018. By 2018, Jinglan Muhe had fulfilled its performance commitment; northern gardens accumulated 79.72% of the promised net profit; the cumulative net operating cash flow realized was-360 million yuan, and there was some pressure to achieve the promised cash flow in 2019 (2017-2019 cumulative net operating cash flow not less than 174 million yuan).

Revenue fell in the fourth quarter compared with the same period last year, and gross profit margin fell slightly. In the fourth quarter of 2018, the company achieved operating income of 820 million yuan, down 8.28% from the same period last year, with a month-on-month increase of 49.91% (mainly affected by the settlement progress). The company's fourth-quarter gross profit margin was 28.29%, down 2.36pct from a year earlier and up 1.42pct from a month earlier.

Gross profit margins of all sectors have declined, and the rate of financial expenses has increased significantly. 1) in 2018, the company's gross profit margin for ecological water-saving operation services was 29.68%, down 3.21 pct from the same period last year; for landscape and environmental science and technology services, the gross profit margin was 27.63%, down 1.46 pct from the same period last year; and the company's overall gross profit margin was 29.34%, a decrease of 2.30pct over the same period last year, mainly affected by the increase in procurement and labor costs. 2) the financial expense rate of the company in 2018 was 8.95%, an increase of 4.69pct over the same period last year. The company's sales expense rate / management expense rate is 2.57% and 9.43%, respectively, with year-on-year changes-0.09pct and 1.03pct.

Accounts receivable decreased compared with the same period last year, inventory increased significantly, and operating net cash flow was significantly lower. At the end of 2018, the company's accounts receivable was 549 million yuan, down 11.02% from the same period last year. Due to the large number of projects started by the company during the year, the inventory scale rose 78.90% to 4.569 billion yuan in 2018 compared with the same period last year. The net operating cash flow of the company in 2018 was-843 million yuan, down 448 million yuan from the same period last year.

Results fell in the first quarter of 2019 compared with the same period last year. The company issued a forecast for the first quarter of 2019, which is expected to achieve a net profit of-0.9 to-50 million yuan, down 37.68% and 12.17% compared with the same period last year. On the one hand, the original saving irrigation and garden business is seasonally obvious, and most of the company's business is in the north, which is in the project preparation period in the first quarter and started more in the second quarter; on the other hand, the scope of the consolidated statement has changed in the company's mergers and acquisitions, and the expenses have increased year-on-year.

The acquisition of Zhongke Ding has cut into the environmental restoration industry. In January 2019, the company completed the acquisition of 56.72% of Zhongke Dingshi's shareholds. up to now, the company holds 77.72% of Zhongke Dingshi's shares, and Zhongke Dingshi has become a controlling subsidiary of the company. Zhongke Dingshi is a leading enterprise in the environmental restoration industry, with a strong technical background and rich experience in large-scale and complex engineering. It has a strong competitive advantage in the period when the industry pattern has not yet taken shape and the industry demand is rapidly released. With reference to the performance commitment and the development of the industry, we expect that Zhongke Ding can bring about 100 million profits to the company every year, and is expected to form coordination with the northern gardens to further improve the layout of the company's ecological industrial chain.

Investment suggestion

We believe that the development of the company's energy-saving irrigation and garden business is relatively stable, with higher financing costs and more construction projects in 2018, resulting in greater cash flow pressure; but the company is the leader in the environmental restoration industry, and the company is currently in the hands of more than 1 billion orders. since 2018, the industry boom has continued to improve, and it is expected to become a new profit pillar of the company in the future. We estimate that the company's EPS in 19-21 will be 0.270.270.31 yuan, corresponding to the company's closing price on April 24th 6.95yuan, and the 1921 year PE will be 26.1825.8722.31 respectively, maintaining the "overweight" rating.

Risk hint

Policy promotion is not as expected; project progress is not as expected; industry competition is increasingly fierce, profit margins are declining; goodwill impairment risk; debt and financing risk; systemic risk.