Incident: The company released its 2019 semi-annual report. During the reporting period, revenue reached 16.886 billion yuan, a year-on-year decrease of 13.91%; Guimu's net profit was 1,149 million yuan, an increase of 20.24% over the previous year.
Operating income declined year-on-year due to active adjustment of business strategies. Faced with the unfavorable situation in the international shipping market, the company adheres to the bottom line of “not accepting orders with marginal profits less than zero or negative cash flow” to prevent and control risks from the source of receiving orders. The company's revenue during the reporting period was 16.886 billion yuan, a year-on-year decrease of 13.91%. By product: 1) Marine defense and marine development equipment revenue was 7.544 billion yuan, an increase of 21.65% over the previous year, accounting for 44.68% of total revenue, mainly due to the increase in revenue from confirmed products during the reporting period; 2) Revenue from marine transportation equipment, deep-sea equipment and ship repair and modification, strategic emerging industries and other businesses was 28.70/553/25.05 billion yuan respectively, down 43.88%/73.95%/4.44%, respectively. Because the number of revenue-recognized products declined during the reporting period, the other was due to the company's active adjustment and optimization of business strategies.
Loss control efforts have been effective, and profitability has been effectively improved. The company vigorously promoted the management of enterprises dealing with deadlocks and losses. In the second half of 2018, it completed the sale of two subsidiaries, Shanzao Heavy Industries and Qingdao Wushuan. The subsidiary, Dachuan Offshore, entered a restructuring process, effectively reducing the sources of losses within listed companies. The company closely focuses on its core business and strengthens the control of costs and expenses. The cost rate for the period was reduced by 0.59 pct compared to the same period last year. Benefiting from the disposal of inefficient assets and the improvement in the quality of development, the company achieved net profit of 1,149 million yuan (+20.24%) during the reporting period. The gross sales margin increased by 1.69 pct to 11.54% over the same period last year. The gross sales margin of all products in the main business increased to varying degrees.
Asset integration to improve asset quality will benefit from the rapid development of the naval equipment market. The merger of North-South Shipbuilding kicks off the integration and restructuring of the shipbuilding industry. The company will participate in China Power's asset restructuring with 17.35% of China Shipyard's shares and 15.99% of Wuhan Shipbuilding's shares. This will help the company focus on the main owners' responsibilities and revitalize existing assets. The company is the main supplier of naval equipment and undertakes R&D and production tasks for too many types of major military equipment. China's naval naval equipment will still be at the peak of construction, and the company's future performance will benefit from the rapid development of the naval equipment market.
Profit forecast and investment advice: The estimated revenue for 2019-2021 is 450.31/469.17/49.789 billion yuan respectively, net profit of the mother is 1,538/1624/1,782 billion yuan, EPS is 0.07/0.07/0.08 yuan, and the current stock price corresponding to PE is 89/84/77 times. It is covered for the first time, giving a “increase in holdings rating”.
Risk warning: The recovery of civilian ships fell short of expectations; military products were installed less quickly than expected.