The results in the first half exceeded our expectations
Oriental Garden announced its first-half results: the income was 1.78 billion yuan, down 18.9% from the same period last year, and the net loss was 190 million yuan, which was 79.0% lower than the same period last year. 2Q realized income of 1.34 billion yuan, an increase of 13.5% over the same period last year, and a net profit of 99.2 million yuan (a net loss of 630 million yuan in the same period last year). Due to the rapid recovery of the income end, the performance exceeded our expectations. The company expects to achieve a net profit of-100 million to 100 million yuan (central break-even) in the first three quarters, implying that 3Q will achieve a net profit of 0.9-290 million yuan (central 190 million yuan v.s.3Q19 profit 8.51 million yuan) in a single quarter. 3Q20's profit is expected to continue to grow rapidly.
2Q20's revenue increased by 13.5% year-on-year, achieving positive growth again after 4Q19; 2Q20 gross profit margin decreased by 3.0ppt to 25.8% compared with the same period last year; as the revenue side recovered and the company optimized its management structure, the expense rate for the four periods decreased, reducing 32.9ppt to 24.0%; credit impairment loss decreased by 85.6% to 19.37 million yuan Investment income increased by 142.3% to 74.53 million yuan, mainly due to equity adjustment; 2Q20 achieved a net interest rate of 7.4%, an increase in 60.5ppt compared with the same period last year.
2Q20 had a net operating cash outflow of 120 million yuan, a year-on-year decrease of 410 million yuan, mainly due to accelerated inventory turnover; a net investment cash outflow of 240 million yuan, compared with a net inflow of 450 million yuan in the same period last year, mainly due to an increase in cash payments from subsidiaries.
Trend of development
Revenue from construction is expected to continue to be repaired. In the first half of the year, engineering construction revenue decreased by 33.7% compared with the same period last year, of which revenue from municipal gardens, water environment treatment and global tourism decreased by 34.5%, 16.4% and 80.9%, respectively. We estimate that the current company has plenty of projects on hand, and through measures such as accelerating the return of funds for projects on hand, actively communicating with projects that have not yet landed, and accelerating the landing of funds, we estimate that construction revenue is expected to continue to be repaired in the second half of the year.
The new business of circular economy is expected to become a new growth point. The company actively distributes the circular economy industry, including waste household appliances, recycling of electronic products, automobile disassembly, etc., and uses the core technology to recycle resources and provide circular transformation and value-added services for the industrial park; the business realized 260 million yuan in the first half of the year, which has become an important driver for the company's revenue-end repair.
The net debt ratio is still high, focusing on leverage. At the end of the first half of the year, the company's asset-liability ratio was 69.9%, down 1.1 ppt from the end of 2019, while the net debt ratio was 96.6%, a further increase in 12.2ppt compared with the end of last year. The structure of the company's interest-bearing liabilities was further improved, with the balance of interest-bearing liabilities at the end of the first half of the year reaching 14.2 billion yuan (12 billion yuan at the end of last year), of which the balance due within one year was 5.9 billion yuan (7.1 billion yuan at the end of last year). At present, the company is actively promoting the issue of non-public preferred shares, we expect that the deal is expected to reduce the company's net debt ratio, it is recommended to continue to pay attention to the progress of the relevant transactions.
Profit forecast and valuation
Keep the profit forecast unchanged. The current share price corresponds to a price-to-earnings ratio of 13.2 times 2021 / 11.6 times earnings. Maintain an outperform industry rating and a list price of 5.74 yuan, corresponding to 14.5 times / 12.8 times 2020 / 2021 P / E, which has 10% upside compared to the current stock price.
Risk
The implementation of the project is not as expected; the progress of external financing is not as expected.