Lower-than-expected performance, improved cash flow and increased asset-liability ratio

In the first half of the year, the company achieved revenue of 4.8 billion yuan,-11.35% compared with the same period last year, realized net profit of 345 million yuan,-43.05% year-on-year, and deducted non-net profit of 186 million yuan,-68.6% year-on-year, lower than expected. The sales expense rate decreased from 0.82pct to 1.54%, the management expense rate decreased from 0.2ptc to 9.10%, and the financial pressure was still great. The financial expense rate increased by 1.48pct to 7.06%, and the overall expense rate increased by 0.46pct to 17.7%. The balance of accounts receivable at the end of the period was 6.58 billion yuan, + 18% year-on-year, mainly from renewable resources and sanitation business. At the end of the period, the cash on hand was 2.72 billion yuan, and the asset-liability ratio rose by 5.22pct to 63.88% compared with the same period last year. The operating cash outflow narrowed sharply, from-1.04 billion to-157 million in the same period last year, of which the operating cash flow was 100 million yuan in the second quarter.

The engineering business was greatly reduced, and the operating income of sanitation, solid waste and water services exceeded 70%.

The company took the initiative to shrink its municipal engineering business in the first half of the year, achieving revenue of 771 million yuan,-47.72% compared with the same period last year. Affected by this, equipment and consulting business also declined-32.8%. The decline of these two businesses is the primary reason for the decline in the company's profits in the first half of the year. The proportion of total revenue from the company's operating business increased to 70.6% from 54% last year. Sanitation business achieved revenue of 1.952 billion yuan, + 35.11% year-on-year, continued to maintain a high growth rate, gross profit margin decreased to 16.68% 2.38pct, later gross profit margin is expected to increase steadily. Affected by the operation of a number of waste incineration projects, the revenue of solid waste disposal business reached 310 million yuan, + 93.28% compared with the same period last year, and the gross profit margin increased by 9.4pct to 21.92%. The company operates domestic waste treatment capacity of 158000 tons / day, with a total scale of 459000 tons / day (including under construction).

The revenue of the sewage treatment business is 331 million yuan, the income is + 96.54%, and the gross profit margin is 35.76%. The sewage business benefits from the increase in the number of projects and the adjustment of water prices. The revenue is 331 million yuan, which is + 96.54% compared with the same period last year. The gross profit margin increased by 35.76%, and the total treatment scale of the project was 265.69 million tons per day. The water supply business remained basically stable, with revenue of 78 million yuan, + 11.9% of the same period last year. The company took the initiative to reduce the disassembly of home appliances, renewable resources business revenue of 612 million yuan, year-on-year-39.63%, accounts receivable is expected to be improved.

Profit Forecast and Investment rating

The company has taken the initiative to shrink in the past 19 years, adjust the business structure, digest orders on hand, and improve the quality of operation. The proportion of the company's operating business has reached 70%, with a steady increase in gross profit margin and a wealth of orders on hand, laying a solid foundation. The operating income of the company is similar in the first half and the second half of the year. According to the revenue and profit in the first half of the year, we deduce the company's annual results and reduce the company's profit forecast for 19-20 years by about 50% to 7.0x10.1 billion yuan, corresponding to a PE of 1.44 billion yuan in 20-14-10.

The company's solid waste disposal industry chain layout is complete, benefiting from the promotion of waste classification. We are long-term optimistic about the resources that Enlightenment and Xiongan Group will bring to the company, and the company will return to its position as the leader of environmental protection and maintain its buying rating.

The risk indicates that the progress of the project may not be as expected and the accounts receivable is too high.