Core views:
1. Investment events
The company announced its 2019 semi-annual report. 2019H1 achieved revenue of 811 million yuan, a year-on-year decrease of 23.09%. Guimu achieved net profit of 123 million yuan, a year-on-year decrease of 15.11%.
2. Analytical judgment
The company's semi-annual performance is in line with expectations. 2019H1 achieved revenue of 811 million yuan, a year-on-year decrease of 23.09%. Among them, the ecological restoration business was 465 million yuan, accounting for 56.36%, an increase of 16.46% over the previous year. The reason was that the revenue contribution of the company's mine restoration business increased, the subsidiary Luzhiyuan was certified as a high-tech enterprise, obtained a grade A qualification for geological disaster management projects, and participated in the construction of the “Alpine Arid Zone Mine Geological Environment Remediation Engineering Technology Innovation Center” by the Ministry of Natural Resources; the ecological and cultural tourism business was 332 million yuan, accounting for 40.91%, a year-on-year decrease of 46.22%. The reason was to strengthen the selection of the best among large-scale projects and strictly control the scale of real estate landscape projects. During the reporting period, the company achieved net profit of 123 million yuan to the mother, a year-on-year decrease of 15.11%.
Non-net profit was deducted from 125 million yuan, a year-on-year decrease of 11.77%. The company achieved net cash flow from operating activities of -35 million yuan, a year-on-year decrease of 144 million yuan. EPS was 0.20 yuan/share, a year-on-year decrease of 0.047 yuan/share.
The gross margin has been rising steadily, and the expense ratio has risen somewhat. 2019H1's comprehensive gross margin was 37.60%, an increase of 8.68pct over the previous year. Among them, the gross margin of the ecological restoration business was 38.64%, an increase of 10.54 pct over the previous year; the gross margin of ecological cultural tourism was 35.23%, an increase of 6.92 pct over the previous year.
The net interest rate of 2019H1 company was 15.27%, up 1.48 pct from the previous year. The company's expenses rate for the period was 15.70%, an increase of 5.91pct over the previous year; the financial expenses rate was 5.74%, an increase of 2.14pct over the previous year; the management expenses rate was 9.97%, a decrease of 3.76% over the previous year.
The strategic layout has paid off. The optimization and adjustment of the company's business regional structure has achieved remarkable results. Regional revenue is more balanced, and the share of business revenue in core regions has increased rapidly. During the reporting period, the company achieved business revenue of 26,00913 million yuan in East China. The scale of revenue grew rapidly, accounting for 32.08% of the company's operating income in the current period, up 27.73% over the same period last year. The company further controlled and adjusted the scale and composition of business revenue in the southwest region, increased the revenue share in Chengdu and Chongqing, and formulated a “go home” strategy for the subsidiary Golden Point Garden. In 2019, H1 achieved business revenue of 276.3051 million yuan in the southwest region, accounting for 34.08% of the company's current operating income. Among them, the revenue share of the Chengdu and Chongqing region increased dramatically, accounting for 75.06% of the business revenue in the southwest region, and the quality of revenue improved markedly.
State-owned assets are invested in stocks, and strong alliances are expected to complement each other's strengths. Zhongying Fund signed a “Share Transfer Agreement” with Ms. Wang Yingyan and Mr. Pan Naiyun on July 28, 2019. Ms. Wang Yingyan and Mr. Pan Naiyun transferred 62,619,970 shares and 2,640,791 shares of Meishang Ecology shares held by them to Zhongying Fund respectively, totaling 65,260,761 shares (accounting for 9.6784% of the company's total shares). The full name of Zhongying Fund is Hunan Xiangjiang Zhongying Industrial Transformation and Upgrading Investment Fund Enterprise (limited partnership). It is a limited partnership actually controlled by Hunan Xiangjiang Zhongying Investment Management Co., Ltd., a capital operation and foreign investment platform owned by Hunan Xiangjiang New Area Development Group Co., Ltd. (hereinafter referred to as “Xiangjiang Group”). The actual controller of the Xiangjiang Group is the State-owned Assets Administration Commission of the Changsha Municipal People's Government. Zhongying Fund strategically invested in Meishang Ecology and became an important strategic shareholder. The two sides are expected to establish a comprehensive, in-depth and sustainable strategic partnership in industrial collaboration, market and resource sharing, financial support and business support, which is expected to further strengthen and consolidate the company's competitive advantage and industry position in the three major business fields of ecological restoration, ecological cultural tourism, and ecological products.
3. Financial analysis
The company's revenue grew faster year-on-year in 2016 and 2017, and revenue declined thereafter. The company's net profit continued to grow in 2014-2018, the year-on-year growth rate in 2016 was relatively fast, and the company's net profit grew negatively in 2019.
The year-on-year growth rate of the company's revenue has continued to decline since Q3 2017, and Q4 2018 entered negative growth. The company's net interest rate is highly cyclical. Since Q3 2017, the year-on-year growth rate of the company's net profit has fluctuated greatly, and continued to grow negatively in 2019.
Since 2017, the company's period expense ratio, management expense ratio and financial expense ratio have continued to rise. Gross margin in 2014-2017 showed a downward trend. Net interest rates have increased slightly in the past three years, and net interest rates have fluctuated slightly.
4. Investment advice
The company's 2019-2021 EPS is expected to be 0.71/0.89/1.05 yuan/share, and PE is 18.5/14.9/12.5 times, respectively, giving a “recommended” rating.
Risk warning: the risk of a decline in fixed asset investment; the risk that policy implementation falls short of expectations.