The deduction of non-net profit in 2019 meets our expectations.
Citic Haizhi released its 2019 results: operating income was 1.567 billion yuan, an increase of 9.9% over the same period last year, and its net profit was 210 million yuan, an increase of 40.5% over the same period last year, deducting 180 million yuan from non-parent net profit, an increase of 72.5% over the same period last year, which is in line with our expectations. In the fourth quarter, the company achieved operating income of 420 million yuan, down 3.4% from the same period last year, and net profit of 54.6 million yuan, down 12.6% from the same period last year.
Revenue growth slowed slightly in the fourth quarter compared with the same period a year earlier. The company's fourth-quarter operating revenue fell 3.4% year-on-year (VS. The growth rate in the third quarter was 9.4% over the same period last year. The average price of cloth oil in the second half of 2019 is about 62.3 US dollars per barrel, which is about 13.5% lower than that in the second half of 2018. The company's biggest customer in 2019 is CNOOC (64% of sales). We estimate that lower oil prices may make the company's offshore oil business weak.
Compensation income increased profit in the fourth quarter. In the fourth quarter of 2019, the company confirmed that Airbus helicopter company H225 suspension compensation income and clearance (compensation paid to the company for construction projects around the airport for breaking through the restricted height of the airport clearance protection zone) was about 28 million yuan, which was included in non-operating income. Excluding the impact of non-operating income and navigation subsidy income, the company's 4Q19 net profit is about 26.7 million yuan, up about 647% from the same period last year.
In 2019, the profit margins of the main business and operating margins improved year-on-year. For the whole year, the profit margin of the company's main business increased 1.9ppt compared with the same period last year, the operating profit margin increased 5.5ppt year-on-year, and the profitability improved, which we estimate may be related to the increase in the contract unit price of the company.
Trend of development
Affected by the sharp drop in oil prices and the COVID-19 epidemic, we expect profits to decline in 2020. Since the failure of negotiations at this year's OPEC+ meeting, oil distribution has plummeted continuously, falling by more than 50% so far this year. CICC Group forecasts that the average oil distribution price in 2020 is about 45.50 US dollars per barrel (down 24% from 2019). The delay in resuming work caused by the COVID-19 epidemic will have a negative impact on the company's operation. We expect the company's 2020 profit to fall by 31.4% year-on-year to 145 million yuan.
Profit forecast and valuation
Considering the impact of downward oil prices and the COVID-19 epidemic, the company lowered its profit forecast of 18.1% to 114.5 million yuan in 2020, and introduced a profit forecast of 160 million yuan in 2021 for the first time. The current share price corresponds to a price-to-earnings ratio of 26.5 times 2021 / 24.0 times earnings. To maintain a neutral rating, due to the earnings downgrade, the target price was lowered by 14.3% to 6.6 yuan, corresponding to 27.6 times 2020 price-to-earnings ratio and 25 times 2021 price-to-earnings ratio, which has 4.1% upward space compared with the current share price.
Risk.
Demand in the offshore oil market was lower than expected; the renminbi depreciated sharply against the dollar; subsidies declined.