Main points of investment

In the first half of 2019, the company achieved operating income of 165 million yuan, an increase of 6.06% over the same period last year, mainly due to the rapid growth of design income from commodities, hotels and rail transit. However, the growth rate dropped sharply compared with the same period last year. It is mainly due to the decline in the growth rate of office design and soft decoration sales.

In the first half of 2019, the company achieved a comprehensive gross profit margin of 51.68%, a year-on-year decline of 1.19pct, and a net profit margin of 24.22%, a decline of 0.86pct compared with the same period last year. The decline in gross and net interest rates is mainly due to cost growth (8.74%) than income growth (6.06%).

In the first half of 2019, the company's expense rate was 23.14%, a decrease of 0.99pct compared with the same period last year, mainly due to a decrease in management expenses (including R & D expenses), while sales and financial expenses increased. The company's asset impairment loss in the first half of 2019 decreased by 39 million yuan compared with the same period last year, down 17.06% from the same period last year, mainly due to a reduction in losses on bad debts.

The company's net operating cash flow per share in the first half of 2019 was 0.06 yuan, an increase of 0.12 yuan over the same period last year, mainly due to a substantial increase in the cash-to-income ratio.

Earnings Forecast and rating: we expect the company's EPS in 2019-2021 to be 0.95,1.12,1.24,18.6,15.8,14.2 times, respectively, corresponding to the closing price on August 30, giving a "prudent overweight" rating for the first time.

Risk tips: macroeconomic downside risks, real estate investment decline risks, business expansion is not up to expectations