Events:

The company released its semi-annual report for 2019 on the evening of August 15: in the first half of the year, the company realized revenue of 366 million yuan, an increase of 6.99% over the same period last year, and realized a net profit of 32.0921 million yuan belonging to shareholders of listed companies, an increase of 30.98% over the same period last year. The net profit after deduction was 30.3101 million yuan, an increase of 23.68% over the same period last year.

Main points of investment:

The increase in net profit was 30.98% in line with expectations, and the project in hand steadily promoted the company's revenue in the first half of the year to 366 million yuan, an increase of 6.99% over the same period last year, and the net profit belonging to shareholders of listed companies was 32.0921 million yuan, an increase of 30.98% over the same period last year, which was in line with market expectations. The growth in performance is due to the steady progress of the company's projects and the growth of both the design and EPC business, of which the design business realized revenue of 39.2181 million yuan, an increase of 36.85% over the same period last year, and a gross profit margin of 49.49%, a decrease of 7.23pctptpint EPC business revenue of 286 million yuan, a year-on-year increase of 6.65%, a gross profit margin of 12.72%, and an increase of 4.93pct over the same period last year. In terms of period expenses: the sales expenses were 945800 yuan, down 5.06% from the same period last year; the management expenses (excluding R & D) were 18.9409 million yuan, an increase of 24.35% over the same period last year, mainly due to the increase in the salary of some new employees recruited by the company; the financial expenses were 66200 yuan, an increase from-85700 yuan last year, mainly due to the impact of 15 million yuan in new short-term loans, but the overall financial expenses were not large. The investment in R & D was 16.3424 million yuan, an increase of 177.51% over the same period last year, due to the company's increased investment in R & D and the expansion of the proportion of outsourced R & D. Accounts receivable totaled 209 million yuan, accounting for 31.08 percent of total assets, down from 51.2 percent in the same period last year. Accounts receivable improved, and the net cash flow of business activities was-27.8089 million yuan, basically the same as last year.

In the first half of 2019, the company successively won the general contract project of Liangzhu ruins park tourism infrastructure supporting project (217 million yuan), the environmental improvement project of Shilongshan south block and the EPC general contract project of Lingshan road upgrading project (181 million yuan). At present, the contract project in hand is more than 700 million yuan, which is 133% of the company's revenue in 2018. On-hand orders are sufficient to ensure future performance growth. In July 2019, the company invested 40 million yuan in Shanghai Manmeng Culture. Its main business is to use it for hotel and tourism image transformation after obtaining the license of animation image IP. At present, it has obtained the copyright of "Totoro", "Kumamoto Bear", "Bread Superman", "uglydoll" and Hans Christian Andersen fairy tale series characters, and signed agreements with Hyatt, Intercontinental, Greenland, Jinjiang, Yaduo, etc. A total of about 500 hotel rooms have been renovated or authorized, and the target is to renovate 5000-6000 hotel rooms by 2020. The company invests Marvel Culture in the literature and travel industry, on the one hand, it can improve the company's design ability in the animation field, and integrate animation elements into the design of the company's wetland parks, scenic spots and other fields. on the other hand, the operation experience of Manmeng Culture in the hotel can bring coordination for the company to expand its operation business and thicken the company's performance.

From design to EPC, the logic of growth continues to be realized.

The company has double Grade A qualification for landscape architecture and construction design. with the West Lake Comprehensive Protection Project, Xixi National Wetland Park, "G20 Hangzhou Summit", "Xiamen BRICS leaders meeting" core landscape design and other works to create a good brand image, is a leading enterprise in the landscape design industry. While consolidating the design business, the company gives full play to the design business to grasp the overall entrance advantages of the project, and actively expand to the downstream EPC, engineering and other business, with obvious advantages (the design business generally accounts for only about 3-5% of the total contracting scale of the project, and the expansion of EPC business can greatly improve the revenue level and open up new growth space). The gross profit share of the company's EPC business increased from 11.75% in 2017 to 45.70% in 2019H.

Profit forecast and investment rating: maintain the company's "overweight" rating. Combined with the company's semi-annual report, we downgrade the company's profit forecast, the company is expected to 2019-2021 EPS of 0.61,0.74,0.88 yuan, respectively, corresponding to the previous share price PE of 32, 26, 22 times, we are optimistic about the company's EPC business performance flexibility and the expansion of literature and travel business to bring valuation improvement, so to maintain the company's "overweight" rating.

Risk hints: the risk that the project expansion is less than expected, the risk of a substantial increase in accounts receivable, the uncertainty risk of expanding into the engineering field, the upward risk of interest rate, the lower-than-expected risk of contract execution, and the lower-than-expected risk of synergy with Marvel culture, macroeconomic downside risk.