Matters: The company released its three-quarter report. In January-September, the company's operating income was 794 million yuan, down 14.30% from the previous year; net profit attributable to shareholders of the parent company was 77 million yuan, down 21.63% from the previous year; and earnings per share were 0.22 yuan, down 12.00% from the previous year.
The company's performance was in line with expectations and was significantly better than that of the garden industry. From January to September 2019, the company's operating income was 794 million yuan, a year-on-year decrease of 14.30%; net profit attributable to shareholders of the parent company was 77 million yuan, a year-on-year decrease of 21.63%. The company's performance was in line with expectations. Since 2018, the country has increased the regulation and rectification of PPP projects, while banks have shrunk the scale of financing PPP projects. The garden industry was first impacted. The performance of industry leaders has declined sharply, and there have even been losses. As a garden company that has only been listed for 3 years, although the company's performance has declined, it is still at a good level compared to the industry.
The debt ratio is relatively stable, and profitability has improved. As of the end of September 2019, the company's balance ratio was 65.98%, up 0.13 percentage points from the end of 2018. Overall, it remained relatively stable. Compared with industry leaders, the company's balance ratio was relatively low. The company's profitability has improved. The company's gross profit margin from January to September 2019 was 28.46%, a slight decrease of 0.52 percentage points from 2018; the net interest rate was 9.78%, a slight increase of 0.83 percentage points from 2018. In 2018, the company increased its collection efforts, and there was a marked improvement in cash flow. The net cash flow from operating activities for the year was 145.56 million yuan; the net cash flow from the company's operating activities from January to September 2019 was 21.57 million yuan. It is expected that there will be a significant improvement in cash flow in the fourth quarter.
The company's order reserves are good, and the prospects for increased cultural tourism can be expected. The amount of new projects signed by the company in 2018 was 5.234 billion yuan, of which the contract amount for the ecotourism landscape project was 2,250 million yuan, accounting for about 43%.
From January to September 2019, the company signed new projects amounting to 469 million yuan, and ecotourism landscape of 18 million yuan.
The company's order reserves are good enough to support the company's business development needs in the next few years. At the same time, according to the announcement and project acceptance, the company will increase its ecological cultural tourism business, especially the red tourism project.
In 2018, the company successfully obtained the Shaoshan Beautiful Village Construction PPP Project and the Qingfeng Red Cross Cultural Tourism Complex PPP project. Through participating in PPP projects and increasing cultural tourism projects such as characteristic towns and red tourism, it is expected that cultural tourism will be a major industrial direction for the company's future development.
Actively introduce strategic investors to reduce and mitigate controlling shareholders' pledge risks. The company issued an announcement regarding the exemption of the company's controlling shareholder and actual controller from the share lock-lock commitment. Kao Group and Mr. Xiao Guoqiang intend to apply for an exemption from the share lock promise - if the company's shares are reduced within two years after the lockdown period expires, the amount of annual holdings reduction shall not exceed 5% of the total share capital. If this exemption is passed by the shareholders' meeting, the company will speed up the introduction of strategic investor matters, reduce the risk of stock pledges of listed companies, and at the same time help optimize the shareholder structure and help the company's medium- to long-term development.
Valuation and profit forecast: As the country regulates PPP projects, the garden industry has been greatly impacted, which may lead to a slowdown in the progress of the 2019 project and the postponement of revenue recognition for some projects, etc., so we adjusted the company's performance forecast. The company's revenue for 2019-2021 is estimated to be 1,090 million yuan, 1,362 million yuan, 1,663 million yuan respectively, with year-on-year growth rates of -13.8%, 25.0% and 22.1%; net profit attributable to shareholders of the parent company is 80 million yuan, 103 million yuan, 129 million yuan, etc., respectively The year-on-year growth rate was -20.4%, 29.7%, 24.7%. Earnings per share were $0.24, $0.31, and $0.38, dynamic PE was 29.0 times, 22.4 times, 17.9 times, and PB was 2.0 times, 1.8 times, and 1.7 times, respectively. The company is actively transforming into an ecotourism business while increasing investment in introduction, and the company's order reserves are sufficient, so future business development can be expected. Maintain the company's “increase holdings - A” rating, with a target price of 8.9 yuan.
Risk warning: Risks such as performance falling short of expectations, slow introduction of war investment, changes in PPP policies, and rising financing costs.