Event: the company issued an annual performance forecast for 2019, which is expected to achieve a net profit of RMB 151m to RMB 179 million in 2019, an increase of 10% to 30% over the same period last year, in which the net impact of non-recurring profit and loss on net profit is estimated to be about RMB 20 million, exceeding market expectations.
The performance in the second half of the year has improved, and the operational efficiency has improved. Affected by the macroeconomic situation, the company's performance in the first half of the year is under pressure. However, with the improvement of infrastructure in the second half of the year and the gradual emergence of synergy after China Construction Group took ownership, the company's performance improved significantly in the third and fourth quarters of 2019: 2019Q3 net profit was + 22.25% year-on-year to 22 million yuan (vs 2019Q2 net profit was-66.23% to 19 million yuan), and 2019Q4 net profit increased by 78% to 0.89-117 million yuan (according to performance forecast).
The synergy effect of China Construction Co., Ltd. is gradually emerging, and resources plus funds help the development of the company. China Construction Group became the actual controller of the company in January 2019. The ownership of China Construction Group can effectively reduce the company's pledge risk and improve the company's financial situation; in the future, China Construction Group is expected to integrate its environmental protection business and bring municipal engineering project resources to the company while helping the company break through the ceiling of the subdivided industry. further thicken the company's performance. On December 30, 2019, the company announced the daily related party transactions in 2019. 291 million yuan of related party transactions have taken place between the company and China Construction Group until the date of announcement, an increase of 130 million yuan compared with the estimated amount of 160 million yuan of related party transactions at the beginning of 2019. The platform resources brought by China Construction Group have been reflected. In addition, the company announced on December 30, 2019 and January 10, 2020, respectively, that it will effectively broaden its capital channels with China State Construction Lease and China State Construction Finance through financial leasing (no more than 30 million yuan) and comprehensive credit (500 million yuan). To meet capital needs.
Upgrade to "buy" rating: according to the company's 2019 performance forecast, and the platform resources brought to the company by China Construction Group are gradually emerging, superimposing our judgment on the prosperity of the water market in 2020, we raise the company's profit forecast. It is estimated that the company's net profit for 19-21 will be 170.272 million yuan (the original value is 1.32MB, 138pm). The original value does not take into account the resource synergy of China Construction Group), and the current share price is 14 times PE in 2020. We believe that in the follow-up, China Construction Group will continue to bring new business resources to listed companies, and the year 2020 will be the end of the "Water Ten articles". China Construction Group is expected to expand its related business on the platform of listed companies, further increase the volume of its business and assets, and look forward to bringing new growth momentum after mixed reform and integration, raising its rating to "buy".
Risk hint: the company's original business development is lower than expected; the progress of integration is lower than expected.