Incident: The company released its 2019 annual report on March 28. During the reporting period, the company achieved operating income of 22.829 billion yuan (+13.61%); Guimu's net profit was 548 million yuan, an increase of 2,417 million yuan over the same period last year.
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Business performance continues to improve, and profitability has yet to be improved. In 2019, the company achieved revenue of 21.829 billion yuan (+13.61%), exceeding 1.06% of the annual plan; the contract acceptance amount was 31,946 billion yuan (+32.39%), exceeding 10.16% of the annual plan; and achieved net profit of 548 million yuan to the mother, an increase of 2,417 million yuan over the previous year.
As the most important production and support base for military ships and special auxiliary ships for the Chinese Navy in South China, the company is the largest manufacturer of military auxiliary ships in China. Orders for military products increased sharply year-on-year during the reporting period, and the application industry made a new breakthrough, taking orders of more than 2 billion yuan. However, due to reasons such as the sluggish shipping market due to macroeconomic influence, the price of new ships not improving, and the high labor costs of shipbuilding, etc., the company's profitability still needs to be improved. During the reporting period, the company's non-recurring profit and loss totaled 1,565 million yuan, and net profit after deduction was -1,017 billion yuan. The amount of non-recurring profit and loss this year was mainly due to projects such as Guangzhou Shipyard relocation and resettlement and discontinuation loss compensation of Wenchong Shipyard.
The share of revenue from the company's shipbuilding business declined, and the steel structure engineering business performed excellently. By business, the company's revenue mainly includes shipbuilding products, offshore products, ship repair and modification, steel structure engineering, mechanical and electrical products, and others.
In 2019, with the exception of offshore products, mechanical and electrical products and other businesses, which achieved revenue of 1,321 million yuan and 726 million yuan, respectively, which fell 7.72% and 15.97% year-on-year, the shipbuilding products, ship construction and modification, and steel structure engineering business segments all increased year-on-year, achieving revenue of 16.481 billion yuan (+9.33%), 1,042 million yuan (+14.80%), and 2.012 billion yuan (+177.54%) respectively. The composite gross profit margin was 3.98% (+4.23pcts), and the gross margin of all business segments increased year-on-year. Among them, the gross margin of shipbuilding products was 1.59 (+2.50pcts), mainly the performance contribution of special ships and other ship types; the gross margin of offshore products was 7.94 (+18.65pcts), mainly wind power platform projects that achieved sales this year; the gross margin of ship repair and modification products was 17.52 (+4.74pcts), gross margin of steel structure engineering products 10.94 (+4.70pcts), and gross margin of mechanical and electrical products and other products 2.71 (+4.79pcts). The main reason for the large year-on-year increase in revenue from the steel structure engineering business was due to the full development of production of the Shenzhen-China Channel project during the reporting period, the large year-on-year increase in output value, and the gradual elimination of the relocation factors of Yonglian Company, a subsidiary of Guangzhou Shipbuilding International, and the gradual release of production capacity. Looking at the product structure, due to the 9.32% (+5.51pcts) increase in revenue from the steel structure engineering business, the share of the shipbuilding business declined by 82.49% (-4.38pcts).
The operation and management capabilities of major subsidiaries have been effectively improved, and the asset structure has been further optimized. Major subsidiaries Guangzhou Shipbuilding International and Huangpu Wenchong effectively carried out production and operation management improvements, reducing costs and increasing efficiency. Their 2019 results all turned losses into profits.
Guangzhou Shipbuilding International's net profit increased 1,234 million yuan year over year. The main reason for the large change in operating performance was a loss of 404 million yuan in operating profit and an increase of 741 million yuan in net income from confirmed land compensation. Whangpu Wenchong's net profit increased 1,439 million yuan year over year. The main reason for the large year-on-year change in operating performance was that the reporting period paid close attention to production technology preparation, production process control, and improved shipbuilding modeling management. Overall gross profit increased by 958 million yuan over year, and confirmed asset impairment losses decreased by 435 million yuan over the same period last year. During the reporting period, the two ships merged and strategically restructured, and the company sold 27.42% of Guangzhou Shipbuilding International's shares to China Shipbuilding International. At the same time, the company's market-based debt-for-equity swaps investors proposed to transfer 23.58% of Guangzhou Shipbuilding International's shares and 30.98% of Huangpu Wenchong's shares. This matter is conducive to the restructuring of the company's industry, effectively improving the company's operating efficiency, reducing the company's financial burden, and further improving the quality of the company's assets and overall profitability.
Investment proposal: Merge the strategic layout of the two ships to further optimize the company's asset structure, improve asset quality and improve operating standards. Currently, the company's military and civilian business is developing collaboratively, continuing to promote the development and technical research work of new ship models and high-tech, high-value-added ships. The level of product technology has been further strengthened, and orders for military and civilian goods are expected to be gradually released in the future. In 2020, Guangzhou Shipbuilding International was no longer included in the scope of the company's merger. Combined with the company's design capacity of about 1.5 million DWT in 2020 and planned revenue of 11.823 billion yuan, the company's net profit from 2020 to 2022 is estimated to be 272, 380, and 474 million yuan respectively. EPS is 0.19, 0.27, and 0.34 yuan respectively, giving a target price of 14.06 yuan corresponding to 74 times PE in 2020. The current stock price corresponds to 64, 46 and 37 times PE respectively.
Risk warning: interest rate, exchange rate risk; customer risk.