1H20's performance is slightly better than we expected.
Citic Haizhi announced its results for the first half of 2020: operating income was 690 million yuan, down 8.3% from the same period last year; net profit attributed to the parent company was 71.088 million yuan, down 21.7% from the same period last year, corresponding to 0.12 yuan per share Of this total, the operating income in the second quarter was 370 million yuan, down 11.5% from the same period last year, up 17.4% from the previous quarter, and the net profit was 48.291 million yuan, down 30.2% from the same period last year, up 111.8% from the previous quarter, slightly better than we expected, mainly because the cost control in the second quarter was better than we expected.
Income growth diverged in the first half of the year. In the first half of the year, the company's navigation and transportation business revenue fell 5.3% from the same period last year, similar to the decrease of 4.9% and 6.4% in flight sorties and flight hours compared with the same period last year; financial leasing revenue decreased by 29.1% over the same period last year, mainly due to the adjustment of strategic development direction; navigation maintenance revenue increased by 41.2% in the first half of the year compared with the same period last year.
Thanks to effective cost control, profit margins improved significantly in the second quarter compared with the previous quarter. The company's operating income rose 17.4% in the second quarter from the previous quarter, operating costs rose only 6.4% from the previous quarter, and the profit margin of its main business increased by 7.8pct to 24.7%.
Trend of development
Due to the impact of the staggered period of subsidies, the company's net profit in the third quarter may decline significantly. According to the announcement, Haizhitong Airlines, a subsidiary of the company, received a special subsidy of RMB 211,530,000 yuan for general aviation development in 2020 in April this year. Last year, the subsidy was confirmed in the third quarter (27.698 million yuan). We estimate that under the influence of the staggered period of subsidies, the company's third-quarter net profit may decline significantly.
Oil prices fell sharply, and the company's offshore oil business may be under pressure in the second half of the year. We estimate that the performance of the company's offshore oil business lags behind the international oil price for about half a year. The average price of cloth oil in the first half of this year is about 43 US dollars per barrel, down about 36% from the same period last year. We estimate that the company's offshore oil business revenue in the second half of the year may be larger than that in the first half of the year.
Profit forecast and valuation
Keep profit forecasts for 2020 and 2021 unchanged. The current share price corresponds to 34.6 times 2020 / 2021 / 31.3 times earnings. Maintain a neutral rating and a target price of 6.60 yuan, corresponding to 27.6 times 2020 price-to-earnings ratio and 25.0 times 2021 price-to-earnings ratio, which is 20.3% lower than the current share price.
Risk
Demand in the offshore oil market was lower than expected; the renminbi depreciated sharply against the dollar; subsidies declined.