Summary of the report:
Key data: in the first half of 2019, operating income increased by 36.04% year-on-year to 908 million yuan, and net profit increased 1.36 times to 63 million yuan, realizing EPS 0.12 yuan. The performance is in line with expectations.
Key points of bid winning announcement: the company announced on July 23 that it and Shangwei, a wholly-owned subsidiary, had recently won seven major projects, with a total contract amount of 223 million yuan, equivalent to 14.17% of the business income in 2018.
Main points of investment
Market expansion in a number of areas has achieved results. According to disclosure, in the first half of the year, the company's operating revenue in traditional advantage markets (electrical equipment, iron and steel metallurgy, petrochemical industry), nuclear power and new energy market, rail transit market, and overseas market increased by 98.5%, 2.63 times, 1.04 times and 35.0% respectively compared with the same period last year. Among them, the traditional dominant market contributed 59.5% of the current operating income; the nuclear power business won the bid for units 5 and 6 of the Fuqing Nuclear Power Station in the first demonstration project of "Hualong No.1". And the Shidao Bay nuclear power plant project, the world's first high-temperature gas-cooled reactor demonstration project, demonstrates the technical strength of high-end products. The bid-winning projects announced on July 23 involve national key projects such as Baihetan Hydropower Station, South Sichuan Intercity Railway and the Weidabe Power Plant Project in Indonesia along the "Belt and Road Initiative" line, which are used in many market segments such as electric power, construction, rail transit and iron and steel. If implemented smoothly in the later stage, it will help to increase income and profits, and moderately benefit the brand premium.
The profit level improved compared with the same period last year. Benefiting from the optimization of product structure and the improvement of cost control, the comprehensive gross profit margin and net sales margin increased by 3.87 and 2.86 percentage points respectively over the same period last year to 21.05% and 6.86%, respectively.
Plans to expand the offshore wind power market. The company announced on May 22, 2019 that it and Dafeng District of Yancheng City, Jiangsu Province decided to carry out strategic cooperation in offshore wind energy development, new energy and other fields. We believe that if the progress goes smoothly, the company is expected to cultivate performance growth points through the industrialization of submarine cables.
Give a "recommended" rating: we expect the company to achieve current equity EPS of $0.24,0.30 and $0.36 in 2019-2021, corresponding to 40.2,31.6x and 26.5x EPS E.
Risk tips: market expansion may not meet expectations; cost control is effective or deviates from expectations.