The company released its mid-year report in 2019, with revenue of 3.183 billion yuan in the first half, down 35.55%, and net profit of 10 million yuan, with a decrease of 97.34% EPS, or 100%. The overall performance of the garden industry has declined, the company's recent preferred stock issue has been approved, and the financial situation is expected to improve.

Support the main points of rating

Revenue decline, gross profit decline expense rate increased, financial pressure is still large, and the follow-up is expected to improve: due to the impact of the company's confirmed decline in revenue in the first half of the year, the company's gross profit margin fell 4.85pct year-on-year, while all expenses increased 3.78pct, while accounts receivable turnover and inventory turnover decreased. However, the company's operating cash flow has improved compared with the same period last year, mainly due to an improvement in cash revenue from sales and cash payments for purchases. The company's capital expenditure has decreased, but the new debt has increased, and the cash ratio is basically flat. We believe that under the background of the sharp decline in the performance of the garden industry, the company's current cash pressure may still be large, but with the implementation of a series of measures such as the subsequent issuance of preferred shares, the company's financial situation is expected to have a significant marginal improvement.

The company has abundant orders on hand, and there is no worry about the growth of capital performance: as of 2018Q3, the company has ordered 48.439 billion yuan, and the order-to-income ratio has reached an all-time high of 4.96. As long as the funds are in place, the company's performance growth rate will be restored with great certainty, and the company will further strengthen its control over project payback and performance quality in the future.

With the deep investment control strategy, the preferred stock issue is expected to improve the financial situation: the company introduces the deep investment control strategy at the end of 2018, and the operating condition is expected to improve under the endorsement of state-owned shareholders. Recently, the company's preferred stock issue has been officially approved, and the financial situation of the company and major shareholders is expected to improve significantly after the issue.

Valuation

Considering that the risk of the garden industry continues to be released, it is expected that the company's current cash pressure is still large, and the fundamentals of the company will improve marginally after issuing preferred shares, so the performance forecast is downgraded and temporarily downgraded to neutral rating. It is estimated that from 2019 to 2021, the company's revenue is 55.07,76.75 and 9.605 billion yuan respectively, the net profit is 0.75,2.62,419 million yuan respectively, and the EPS is 0.03,0.11,0.18 respectively.

Main risks faced by rating

The policy of PPP project is tightening and the macro policy is turning.