Summary of events: on October 28, 2019, the company released three quarterly reports. From January to September in 2019, the company achieved revenue of 1.273 billion yuan, year-on-year-0.15%, net profit of 344 million yuan, + 6.39%, and net profit of 221 million yuan after deducting non-return, which was-4.07% of the same period last year.
The company's results from January to September 2019 were in line with expectations, and the year-on-year increase in fuel price subsidies offset the impact of high oil prices on the company's profits. From January to September 2019, the gross profit margin of the company's main business was 33.8%, which was 35.5% lower than the 35.5% gross profit margin of the same period last year. We judge that fuel costs have increased mainly because of the rise in fuel prices this year. In the first three quarters of 2019, the company received 149 million yuan in government subsidies (mainly fuel price subsidies), an increase of about 42 million yuan over the same period last year. We judge that the year-on-year increase in fuel price subsidies thickened the company's profits. offset the impact of rising fuel costs on the company's profits.
Revenue fell in the third quarter compared with the same period last year, financial expenses decreased significantly compared with the same period last year, and performance improved compared with the same period last year. In the third quarter of 2019, the company achieved revenue of 460 million yuan, year-on-year-6.6%, operating cost of 300 million yuan, year-on-year-5.6%, gross profit margin of 34.1%, slightly lower than the same period last year. In the third quarter, the company's net profit after deducting non-return was 70 million yuan, + 11.1% compared with the same period last year, with a positive growth rate. The decline in net profit in the first three quarters of 2019 was-4.07% lower than that of H1 in 2019 (- 9.54% compared with the same period last year). We judge that the improvement in the performance of Q3 company in 2019 is mainly due to the reduction of fees. In the third quarter, the company's three fees totaled 44 million yuan,-26.5% compared with the same period last year, of which the financial expenses were 18 million yuan,-50% compared with the same period last year. The main reason is the decrease in exchange losses and the increase in deposit interest income during the reporting period.
With the launch of new ships in the next three years, the company's market share of passenger and cargo rolling around Bohai Bay is expected to further increase: according to the information disclosed in the mid-2019 report, the new passenger ro-ro ship "Zhonghua Renaissance" is expected to be put into operation in October 2019, we judge that "Zhonghua Renaissance" may replace older ships and put into passenger roll-off business operation. At the same time, according to the 2019 mid-term report, the two ro-ro ships under construction are expected to be launched in April and July 2020, respectively. We believe that with the continuous commissioning of new passenger and cargo rolling ships, the company's share of the passenger and cargo ferry transport market around Bohai Bay is expected to further increase, and its performance is expected to maintain steady growth.
Investment advice: maintain the profit forecast in the first coverage report with an EPS of 0.87, 0.88, and 0.89 yuan respectively in 2019-21, maintain the target price of 10.17 yuan per share, and maintain the "overweight" rating.
Risk hints: policy changes related to refined oil price subsidies; the company has bank loans denominated in US dollars and euros, and the exchange rate fluctuation of RMB against US dollars or euros may have a certain impact on profits; macroeconomic downturn, Bohai Bay regional transport demand is lower than expected; capacity renewal or the risk of impairment of fixed assets.
