Introduction to this report:
Downstream investment is picking up, and the company's new orders continue to grow. In the upward phase of operations, management stepped up cost management efforts, focused on cleaning up problems left over from history, and judged that profit margins would steadily increase.
Key points of investment:
Conclusion: Downstream investment picked up, and the company's new orders continued to grow. In 2018, the number of new orders signed was 10.1 billion, an increase of 1%. In the upward phase of operations, management stepped up cost management efforts. Against the backdrop of a sharp rise in steel prices, the gross profit margin in 2018 was 29.9%, a sharp increase of 6 pct. With the gradual clean-up of issues left over from history and a sharp improvement in repayments, it is determined that subsequent profit margins will steadily rise. The net profit attributable to the company in 2019-21 is estimated to be 0.88, 119, and 144 million yuan respectively, and the corresponding EPS is 0.034, 0.046, and 0.056 yuan. Referring to the industry average PB level (19H1 average PB 2.6X), considering that the company's forecast ROE in 2019 was lower than the industry average, a certain discount was given. 19H1 was given 1.8 times PB, with a target price of 2.93 yuan, giving a “prudent increase in holdings” rating.
Downstream investment is picking up, and the company's new orders continue to grow. The company mainly covers various fields such as rail transit, wind power, offshore engineering, metallurgy and general manufacturing, and has strong adaptability to macroeconomic fluctuations or downstream changes. As downstream investment sentiment picked up, the company's new distribution orders grew steadily. In 2018, the company signed new orders of 10.1 billion yuan, an increase of 1%, of which 6.94 billion yuan was ordered for major projects, accounting for 69% of total orders.
Orders for new products are progressing in an orderly manner, and exports are growing rapidly. The company actively carried out structural adjustments and transformation, and actively expanded into fields such as rail transit, new energy equipment, construction machinery, offshore equipment, etc., and the development of new products progressed in an orderly manner. In 2018, new orders for the first set of new products reached 480 million. In terms of exports, it maintained its share in existing markets and actively developed new markets. Export orders exceeded 1.7 billion in 2018, an increase of 53%.
Strengthen cost management efforts and focus on cleaning up issues left over from history. Target cost management efforts continued to be strengthened in 2018, with design costs reduced by 106 million and procurement outsourcing costs by 74 million dollars throughout the year. Further promote the clean-up of issues left over from history, particularly reducing inventory and receivables, and strengthening repayment management. In 2018, repayment of 8.7 billion dollars was repaid, an increase of 2.4%.
Risk warning: raw material prices continue to be high, and increased competition in the industry triggers a price war