Event: fresh Environment (002573) released its 2018 annual report and 2019 quarterly report, with operating income of 4.088 billion yuan in 2018, down 0.16% from the same period last year; net profit of 525 million yuan, down 19.45% from the same period last year; earnings per share of 0.49 yuan; and proposed 10 shares of 1 yuan. In 2019, the operating income was 765 million yuan, down 24.58% from the same period last year, and the net profit was 98 million yuan, down 15.44% from the same period last year.
Comments:
Costs have risen a lot, and performance has continued to decline. The decline in net profit in 2018 exceeded the decline in income due to lower gross profit margins, higher expenses and larger asset impairment losses. The overall gross profit margin was 28.67%, down 0.75 percentage points from the same period last year. Management expenses (including R & D expenses) increased by 15% compared with the same period last year. Changes in the financing environment led to a significant increase in financial costs, and financial expenses increased by 21.38% compared with the same period last year.
The expense rate during the period was 13.56%, an increase of 1.76 percentage points over the same period last year. The loss of asset impairment increased by 59 million yuan, or 147.27%, over the same period last year. The gross profit margin of 2019Q1 was 28.18%, down 1.95% from the same period last year, and the expense rate during the period was 15.13%, slightly higher than the same period last year. Under the situation of declining operation, the company strengthened the collection of accounts receivable. In 2018, the net operating cash flow was 1.062 billion yuan, an increase of 1500% over the same period last year. The net operating cash flow of 2019Q1 was 355 million yuan, an increase of 518% over the same period last year.
The ultra-low emission transformation of coal-fired power plants is coming to an end, and the company's business growth is weak. The business of flue gas desulphurization, denitrification and dust removal in coal-fired power plants is the company's core business at present. However, the traditional coal power market has shrunk significantly, the completion rate of ultra-low emission transformation of large coal-fired power plants has reached 80%, and the focus of the flue gas treatment market has shifted to non-electricity.
This is the main reason why the company's performance has declined in recent years.
It is expected that the continuous promotion of non-electric smoke control will lead to an increase in business volume. As the national emission standards of industrial smoke pollution become stricter, the prosperity of flue gas control in non-electricity market continues to rise. In June 2017, the Ministry of Environmental Protection significantly raised the special emission standards for industrial air pollutants such as steel sintering (pellets), and increased the special emission limits for industries such as ceramics and flat glass. In May 2018, the Ministry of Ecological Environment proposed that the flue gas emission concentration of iron and steel sintering (pellets) should be more than 70%. The company is also promoting the research and development, engineering application, market development and asset mergers and acquisitions of smoke treatment business in iron and steel, non-ferrous metals, petrochemical and other industries. However, due to the technical differences between the non-electricity field and the traditional thermal power field, the company needs to do a lot of work in the non-electricity field governance technical route, and needs the accumulation of technology and experience in the short term.
The controlling shareholder is planning the transfer of shares, and the actual controller of the company may change. The trading of the company was suspended in April, and the controlling shareholder, Beijing Century, is planning an equity transfer to transfer 25.31% of the shares of the company to Sichuan Development Guorun Environmental Investment Co., Ltd., and the actual controller of the company may be changed.
Investment advice: downgrade to "neutral" rating. It is estimated that the EPS will be 0.45 yuan in 2019, and the corresponding PE will be 21 times. Considering that the company's current business growth is weak, it was downgraded to "neutral".
Risk hint. Business expansion is lower than expected, gross profit margin is lower and cash flow is deteriorating.