This report is read as follows:
In 2019, the company's results fell short of expectations, but still maintained positive growth and cash flow improved significantly. Considering that the company has sufficient orders on hand / abundant cash on hand and low debt ratio, the profit growth is resilient and the allocation price is relatively high.
Main points of investment:
Maintain and increase holdings. In 2019, the reported revenue of 1.45 billion (+ 5.1%) and net profit of 140 million (+ 4.4%) were lower than expected. Taking into account the domestic financing environment and local financial constraints, the EPS from 2019 to 2021 is reduced to 0.54, 0.61, 0.70 (the original 0.63, 0.76, 0.87), with a growth rate of 10, 14, and 13%. Considering the current low market risk preference, the company is given 14 times PE in 2019 and accordingly lowered the target price to 7.56 yuan (the original 8.86 yuan), carefully increase the rating. Dividend plan: cash dividend of 2.0 yuan (including tax) for every 10 shares.
Steady growth in performance, positive operating cash flow and higher gross profit margin. During the reporting period, 1) the growth rates of 2019Q1/Q2 revenue and return net profit were 6.7% and 6.4% respectively, which highlighted the company's sound operating ability; 2) the net operating cash flow changed from negative to positive (2018H1 is-130 million), mainly due to increased payback efforts by the company, with a cash-to-cash ratio of 82.7% (+ 23.8pct). 3) Gross profit margin 20.2% (+ 1.4pct) / net profit rate 9.4% unchanged year-on-year, R & D and management fee 5.0% (of which R & D rate is about 1%) year-on-year level / financial rate 2.5% (+ 0.5pct), asset and credit loss 16 million (+ 23.1%); 4) asset-liability ratio 39.5% (+ 4.0pct).
Strict risk control leads to a more robust operation, a lower debt ratio and a resilient performance guaranteed by ample cash.
1) by the end of June 2019, the company had signed 7.784 billion unfinished orders (about 2.73 times revenue in 2018), and the new contract signed by 2019H1 was 2.909 billion / year-on-year-7.3% (Q1/Q2 was 1.21 billion /-12.0%, 1.7 billion /-3.7% respectively) mainly because the company took the initiative to strictly control the risk and scale of large-scale municipal projects. 2) by the end of June 2019, it is roughly estimated that the company's cash on hand is about 810 million yuan, and it is roughly estimated that 30-4 billion orders can be landed, and the company's asset-liability ratio is relatively low and it is relatively easy to obtain bank credit financing. Performance is resilient; 3) the company buys back 9.586 million shares at an average cost of 6.61 yuan per share, and the rights issue cost is about 6.93 yuan in April 2018.
Catalysts: sustained and rapid growth of social finance, increased ecological and environmental protection policies, gradual downward interest rates, and so on.
Risk tips: a sharp decline in social finance, a sharp slowdown in fiscal expenditure, interest rates continue to rise sharply, and so on.