Forecast that the net profit of returning home decreased by 96.2% compared with the same period last year.
Oriental Garden announcement 2019 performance KuaiBao: in 2019, the business income was 7.71 billion yuan, down 42.0% from the same period last year, and the net profit was 61.156 million yuan, down 96.2% from the same period last year; the implied 4Q19 realized 3.88 billion yuan in operating income, an increase of 6.4% over the same period last year, and a net profit of 950 million yuan, up 52.5% from the same period last year.
Pay attention to the main points
4Q19 revenue and profits returned to positive growth, and the trend of business repair appeared. 4Q19's revenue, operating profit and net profit increased by 6.4%, 28.8% and 52.5% respectively over the same period last year, achieving positive growth for the first time since 3Q18. The transaction of the transfer of control of the company by the original actual controller of the company to North Korea Huixin was completed in September 2019. We believe that the injection of state-owned assets plays a positive role in the external financing of the company. At the same time, with the gradual completion of the stock project, the company's in-hand project implementation and revenue carry-over began to return to normal. In addition, we expect that under the promotion of policies such as prohibiting the government from defaulting on project payments, the company's 4Q payment may be improved, leading to a reduction or reversal of bad debts, and the transfer of some assets may also contribute to a certain amount of income, which will further lead to the growth of 4Q profits.
The preferred stock issue is expected to improve the company's balance sheet. The company's asset-liability ratio (based on parent net assets) was 71.1% at the end of 2019, slightly lower than at the end of 3Q19. The company announced a pre-plan for non-public offering of preferred shares in January 2020; based on balance sheet data at the end of 2019, assuming that 2.5 billion yuan is used to repay debt after a full offering (raising 3 billion yuan), the transaction is expected to reduce the asset-liability ratio by 6.5ppt to 64.6% and the net debt ratio by 35.5ppt to 37.8%. We expect the company's balance sheet to improve after the transaction is completed.
Changes in the mode of operation are expected to lead to an improvement in cash flow. We expect the company's operating cash flow to continue to improve in 2020: 1) ongoing project payback: as project implementation returns to normal and the company continues to increase payback efforts, the company's 2020 project payback is expected to continue to improve. 2) improvement of the quality of new projects: the company currently takes the EPC project as the focus of undertaking new ecological projects, and has formulated strict project acceptance standards, we expect the company's new project payback situation to be improved; 3) continue to expand environmental protection business: we expect the company to continue to expand environmental protection operations such as industrial hazardous wastes, and its cash flow contribution is expected to increase as the business scale expands. Investors are advised to continue to pay attention to the company's cash flow.
Valuation and suggestion
We lowered our 2019 net profit forecast by 19% to 61.16 million yuan, and raised the company's 2020 net profit forecast by 17% to 1.06 billion yuan, taking into account the company's continuous improvement trend. The net profit forecast of 2021 is 1.2 billion yuan. Keep the outperform industry rating and target price unchanged at 5.74 yuan, corresponding to 14.5 x 2020e Phammer E and 23% upside space.
Risk
The payback of the project is not as expected.