The performance is lower than expected, and the profit forecast should be lowered appropriately.
The company issued a performance forecast that 1-3Q19 is expected to achieve a return net profit of 1.0-150 million yuan (down 5% to 35% compared with the same period last year), and 3Q is expected to achieve a return net profit of 2795-74.1 million yuan (year-on-year change-37% to 66%) lower than the market and our expectations. We judge that the lower-than-expected profitability of the company is mainly due to the impact of changes in the management of the same environment on the business, while the price of by-products of water treatment agents has dropped compared with the same period last year. We appropriately reduce the company's profit forecast, and it is estimated that the company's return net profit from 2019 to 2020 will be 292 million yuan (246,294 million yuan before adjustment). With reference to the comparable company's average pact E 14x in 2019, the company was given 13-15xP/E in 2019, corresponding to the target price of 14.04-16.20 yuan per share, maintaining a "buy" rating.
The net profit of homecoming decreased in the first three quarters compared with the same period last year.
The company expects 1-3Q19 to achieve a net profit of 1.0% to 150 million yuan (down 5% to 35% compared with the same period last year), and 3Q to realize a net profit of 2795 to 74.1 million yuan (year-on-year change-37% to 66%). We judge that as the production and marketing of the company's main product HEDP (water treatment agent) remains stable, the decline in net profit may be due to the following two reasons: 1) the co-environment has a certain impact on operating results due to changes in management; and 2) the price of by-products of water treatment agent has dropped significantly compared with the same period last year. We judge that the prosperity of the company's main product HEDP (water treatment agent) is expected to remain at a good level in the fourth quarter. The net profit of subsidiary Zhongxu Construction and Ander Technology 1H19 increased by 32% and 12% respectively compared with the same period last year. The second half of the year is the traditional peak of engineering business settlement. We expect Zhongxu Construction 2H19 operating performance to continue to maintain a rapid growth rate.
The adjustment of the management of the syngenetic environment has been completed, and the overall impact is controllable.
The company issued the notice on the Litigation of the wholly-owned subsidiary of the Company on August 22 to inform the original management of the same health environment that the lawsuit was involved. and on October 10, issued the "announcement of the resolution of the second interim shareholders' meeting" to announce the resolution to remove Mr. Song Yingbiao from the post of director of the former management of Tongsheng Environment. 1H19 contributed 20.37 million yuan in net profit (up 17% from the same period last year). This management change had a certain impact on the performance of 3Q19, but so far, the personnel adjustment of management has been completed, and the negative impact for the whole year is expected to be controllable.
Appropriately downgrade profit forecast and maintain "buy" rating
The company plans to expand the main water treatment agent production capacity of 180000 tons, and construction will begin in the first half of 2020, with a planned construction period of three years. The company expects some of it to be put into production in 2020 to boost production. At the same time, the personnel adjustment of the management of the synbiotic environment has been completed, and the chairman of the board of directors is now personally managing the subsidiary, and the performance of the synbiotic environment in 2020 is expected to be back on track. We appropriately reduce the company's profit forecast, and it is estimated that the company's return net profit from 2019 to 2020 will be 292 million yuan (246,294 million yuan before adjustment). With reference to the comparable company's average pact E 14x in 2019, the company was given 13-15xP/E in 2019, corresponding to the target price of 14.04-16.20 yuan per share, maintaining a "buy" rating.
Risk tips: Zhongxu Construction / Ender science and technology performance commitment has not been fulfilled; investment projects expand too quickly to worsen cash flow; production expansion plan progress is lower than expected; contemporaneous environment performance is lower than expected.