What happened: the company released its 2018 annual report and 2019 first quarter report. In 2018, the operating income was 1.26 billion yuan, up 22.0% from the same period last year; the net profit attributed to shareholders of listed companies was 100 million yuan, down 41.5% from the same period last year. In the first quarter of 2019, the operating income was 250 million yuan, up 24.0% from the same period last year; the net profit attributed to shareholders of listed companies was 20 million yuan, up 52.0% from the same period last year.
The growth rate of Q4 performance in 2018 has declined, and there are plenty of orders on hand: the company's operating income in the first-fourth quarter of 2018 was 2.0,3.9,3.3 and 340 million yuan respectively, an increase of 59.5%, 17.4%, 112.8% and-19.8% respectively over the same period last year. The net profit of returning to the mother was 0.2,0.6,0.2 and 0 billion yuan respectively, up-44.8%, 32.3%, 241.1% and-98.1% respectively. Among them, the sharp decline in the performance of Q4 is due to the increase in the age of accounts and the increase in the provision for bad debts based on the age of accounts, and the impairment of goodwill of Zhengzhou Water Services, a subsidiary, due to its failure to meet the performance commitment, resulting in a decline in net profit in the fourth quarter. From a sub-business point of view, the real estate landscape business shrank sharply, while the municipal road greening business declined by 84.8%, the municipal garden business and water conservancy business grew rapidly, and the regional business in central China grew significantly. The amount of new projects signed by the company in 2018 was 5.23 billion yuan, an increase of 97.97% over the same period last year.
Decline in profitability and increase payback efforts: the company's gross profit margin in 2018 was 29.0%, down 3.0 percentage points from the same period in 2017. This is mainly due to the increase in the proportion of municipal garden revenue with low gross margin, the decline in the proportion of road greening business with relatively high gross margin, and the decline of Zhengzhou water industry's gross profit margin due to contract changes and rising raw material costs. In 2018, the company's net interest rate was 9.0%, down 9.4% from the same period last year. This is mainly due to the increase in sales and management costs caused by the merger of Zhengzhou Water and Zhongwei International, the increase in the corresponding amortization expenses for the company to obtain engineering qualifications, the increase in bank borrowing and the increase in financing costs compared with the previous year. At the end of 2018, the company had 300 million yuan of monetary funds on hand, with an asset-liability ratio of 65.9%. The net cash flow generated by operating activities was 146 million yuan, a substantial improvement over the previous three quarters and an increase of 210 million yuan over last year. This is mainly due to the company's efforts to recover the project funds during the reporting period, and the efficiency of the recovery of accounts receivable is significantly higher than that of the same period last year.
Focus on "Ecology +" to actively expand municipal and water conservancy business, with sufficient orders: during the reporting period, the company undertook projects in many areas, such as ecological environment improvement, ecological landscape construction, cultural and sports operation and construction, characteristic towns, and so on. Adhere to the "ecological +" development strategy. In October 2017, the company completed the acquisition of 80% of Zhongwei International and 60% of Zhengzhou Water. Zhengzhou Water Affairs brought about a substantial increase in water conservancy business in Central China and signed a new contract of 140 million yuan during the reporting period, and Zhongwei International set up new branches in Hubei, Chongqing and Tibet, further expanding and deepening the national layout, with a new contract of 90 million yuan signed during the reporting period. The company's profit distribution plan for 2018 is to pay a cash dividend of 0.30 yuan (including tax) to all shareholders for every 10 shares based on the total share capital on the equity registration date when the profit distribution plan is implemented.
Profit forecast and rating. It is estimated that the EPS from 2019 to 2021 will be 0.67,0.85,1.04 yuan, corresponding to 15,12,10 times of PE. Considering the stable growth of the company's performance in the future, it will be given an "overweight" rating.
Risk tips: project progress, project rebate or less than expected, business development or less than expected risk.