Company announcement 2019 Annual report: during the reporting period, the operating income reached 16.368 billion yuan, an increase of 4.67% over the same period last year, and the net profit was 455 million yuan, down 10.48% from the same period last year, deducting 440 million of non-net profit, down 9% from the same period last year. EPS0.348 yuan. Quarter by quarter: the company's Q1-4 revenue growth rate is 18%,-9%,-1.4% and 19%, respectively.

From the perspective of business: the revenue of special box business increased by 22.8% over the same period last year, which is the biggest bright spot.

1) Special box business: the growth rate of business volume is 22%, which still reflects the growth attribute. The company actively responds to market changes and improves management quality. A) the completed delivery volume was 158.85 TEU, an increase of 22% over the same period last year, which was lower than that of 38.62% in 18 years, and still maintained a rapid growth, reflecting the certain growth attribute of the special box business. B) realized 1.73 billion of revenue, an increase of 22.8% over the same period last year, the growth rate of income was slightly higher than that of business volume, and the rate per box increased by 0.6% compared with the same period last year. C) the gross profit is 317 million, up 15% from the same period last year, accounting for 32%. Due to the increase in cost, the gross profit margin is 18.33%, which is 1.23% lower than that in 18 years. 2) Railway freight transport and Hong Kong logistics business: gross profit has declined due to the competitive environment. Affected by factors such as the decline of goods supply in the regional market and road transport competition, the company adopted strategies such as local policy, "one enterprise, one policy, and price protection" to promote the "transit railway". The total arrival and delivery volume of the Sha-Ba line reached 55.79 million tons, an increase of 2.55% over the same period last year, and the income was 2.384 billion yuan, a decrease of 2.27% over the same period last year. Due to the influence of factors such as falling freight charges and lower customer fees, gross profit was 370 million yuan, a decrease of 16.5% over the same period last year. Gross profit accounts for 37%. The gross profit margin was 15.5%, down 2.64 percentage points. 3) commissioned processing trade business: reduce cost and increase efficiency, gross profit increased by 32%. Cumulative sales of commissioned processing of steel, etc., totaled 3.63 million tons, an increase of 11.76 percent over the same period last year.

The revenue was 11.778 billion yuan, an increase of 4.38% over the same period last year; through strengthening management and effectively controlling operating costs, the gross profit was 222 million yuan, an increase of 32.32% over the same period last year, accounting for 22% of the gross profit; and the gross profit margin was 1.89%, a slight increase of 0.40%. The above three achievements together contributed 909 million of the gross profit, accounting for 91 per cent of the total gross profit. As the gross profit of the railway freight and port logistics business decreased by 73 million, the overall gross profit increased only slightly by 10.78 million. 4) among other businesses, the railway passenger transport business achieved revenue of 44 million, which was the same as the same period last year; the sales revenue of the real estate business was 336 million, down 8.73% from the same period last year, and the gross profit was 70 million, an increase of 5.2% over the same period last year.

The increase in cost is relatively large. Sales expenses were 213 million, up 46.24% year-on-year, management expenses 126 million, up 14.95% year-on-year, and financial expenses 34 million, down 26.44%. The three fees + R & D expenses totaled 375 million, an increase of 24.5% over the same period last year, and the total expense rate was 2.29%, an increase of 0.36% over the same period last year. The increase in sales expenses is mainly due to the increase in transportation and miscellaneous expenses of the commissioned processing business, and the R & D expenses are mainly due to the company's research and development of new box types.

The special box business policy is favorable and is expected to maintain rapid growth. In recent years, the policy orientation is the development of container transport and multimodal transport, and the company has actively carried out "transit railway" and "scattered change set" freight increment actions, and it is expected that the company's special container business can still maintain a rapid growth rate. In 2019, the volume of goods delivered by the national railway was 3.44 billion tons, an increase of 7.8 percent over the same period last year. Under the background of epidemic prevention and control in 2020, railway freight transport also undertakes the transportation of essential materials for production and life, and the company has advantages in special box and multimodal transport business.

Profit forecast and investment advice: taking into account the uncertainty caused by the epidemic on the resumption of work and production, we expect the company's net profit to be 440 million in 2020, down 4% from the same period last year (originally forecast as growth), and expected to achieve a net profit of 5.5 and 620 million yuan in 2021-2022, corresponding to 15, 12 and 10 times PE in 20-22 years, respectively. Based on the historical valuation level, the current company may be at the bottom of the region. Taking 18 times PE in 2020 as a reference, we give an one-year target price of 5.9 yuan, which is expected to be 20% more than the current price and maintain the "recommended" rating.

Risk hint: the economy has fallen sharply, and the volume of public railway business has fallen short of expectations.