3Q19 performance is in line with our expectations
Dinghan Technology announced its results for the first three quarters of 2019: operating income was 1.05 billion yuan, up 15.9% over the same period last year; net profit from its parent was 34 million yuan, up 9.7% from the same period last year, corresponding to earnings per share of 0.06 yuan, which was in line with the company's previous performance forecasts and our expectations. In the third quarter, the single-quarter operating income was 349 million yuan, an increase of 11.8% over the same period last year; the return-to-home net profit / non-return-to-home net profit was 21.7 million yuan respectively, down 15.9% from the same period last year.
The gross profit margin decreased and the expense rate decreased during the period. 3Q19's gross profit margin was 31.9%, a year-on-year decline of 2.6/5.2ppt. The 3Q19 company's sales / management / R & D expense rate decreased by 2.4/1.4/1.1ppt to 12.8%, 10.5% and 2.3%, respectively. The increase in financing costs resulted in an increase in the financial expense rate, 2.4ppt to 6.4%. As 3Q19's non-operating income increased to 5.51 million yuan from 1.44 million yuan in the same period last year, 3Q19's net profit margin was 0.6%, down 0.2ppt from the same period last year.
Cash flow has improved. As of 3Q19, the balance of the company's accounts receivable decreased by 46 million yuan compared with the middle of the year. The net inflow of cash flow from 3Q19's operating activities was 41 million yuan, a significant improvement from the net outflow of 45 million yuan in the previous quarter.
Trend of development
Newly signed orders resumed growth in the third quarter. As the bidding of vehicles in the national railway field fell short of market expectations, the company's newly signed 2Q19 order was only 320 million yuan, down 44.3% from the same period last year; the company's newly signed orders achieved restorative growth in the third quarter, and 3Q19 signed 490 million yuan in a single quarter, an increase of 24.4% over the same period last year. As of 3Q19, the company's on-hand order returned to 2.26 billion yuan. Looking ahead, we expect new orders signed by the company to continue to grow.
The new product carbon dioxide air conditioner will be shipped. Subsidiary Guangzhou Dinghan released carbon dioxide refrigerant air conditioner in December 2018, which is a new product that meets the requirements of energy saving and emission reduction. The company recently signed a cooperation agreement with Deutsche Bahn AG on carbon dioxide air conditioning system for rail transit vehicles. The air conditioner will be loaded and tested at the beginning of 2021.
Profit forecast and valuation
Due to the decline in profitability, we downgraded the company's 20-year EPS forecast for 2019 to 0.16. 23 yuan. The current share price of the company corresponds to 25.5 times of 2019 prime 25.5 times the 20-year 35.7 pound. Taking into account the downward adjustment of earnings forecast and valuation switch, based on the target of 26 times the target PPPink E in 2020, we keep the company's target price unchanged at 5.88 yuan, which is basically the same as the current share price and maintain a neutral rating.
Risk
The growth rate of new orders is not as fast as expected.