The company released its 2020 semi-annual report, achieving revenue of 2,551 million yuan, a decrease of 22.80%, and net profit attributable to 11 million yuan, a decrease of 94.70%; net profit attributable after deduction was -10 million yuan, a decrease of 104.59%.
Incident comments
Revenue and performance declined sharply in the first half of the year, and both achieved positive growth in Q2. The company's revenue fell 23% in the first half of the year, mainly due to the impact of the epidemic, and the progress of the company's proposed and ongoing projects slowed. Among them, revenue from the ecological environment construction and restoration business fell 41.29% to 877 million yuan, revenue from the cultural tourism business fell 47.70% to 228 million yuan, and revenue from the water, water, and environmental treatment business alone increased 9.92% to 1,445 million yuan; attributable net profit fell sharply by 95%, mainly due to: 1) the relative rigidity of cost expenditure in the first half of the year, with gross margin falling 5.61 pct to 20.49% in the first half of the year; 2) due to tighter market financing and local financial payment trends Mitigating the impact, the company increased its efforts to calculate asset and credit impairment losses, increasing the accrual ratio by 1.79 pct to 3.13%; 3) The net profit of its main subsidiary Hengrun Group fell sharply by 73% year on year to 14 million yuan, while the net profit of Water Group also fell 48% to 18 million yuan, while Demaghi lost 25 million yuan; after deduction, vested even more, mainly due to the disposal of subsidiaries generating investment income of about 18 million yuan this year. On a quarterly basis, the company's Q1 and Q2 revenue increased by -72.5% and 1.6%, respectively, and net profit attributable to it increased by -643.6% and 2.4% respectively. Q2 revenue and performance have all achieved positive growth.
Gross margin declined, and the cost ratio increased during the period. The gross margin of 2020H1 company was 20.49% and a decrease of 5.61 pct, mainly due to the fact that the gross margin of the ecological environment construction and restoration business fell 6.11 pct to 18.86%, and the gross margin of the water and water environment treatment business fell 3.37 pct to 17.78%, while the gross margin of the cultural tourism business increased 1.26 pct to 43.88%; the cost ratio (including R&D expenses) increased 1.07 pct to 18.00%, mainly due to the same increase in R&D and financial expenses rates of 1.92pct and 0.47pct respectively At 4.93% and 4.28%, sales and management expenses rates decreased by 0.97 cpt and 0.35 pct to 1.39% and 7.40% respectively; asset and credit impairment loss rates increased by 1.79 pct to 3.13%; net interest rate attributable to 0.43% and 5.89 pct.
Operating cash flow has improved, and both payout and payout ratios have increased. The company's net operating cash flow in the first half of the year was 98 million yuan, an increase of 387 million yuan. The receivables and payout ratios increased by 33.00 pct and 19.99 pct respectively to 130.22% and 135.93%, respectively.
By the end of the first half of the year, the company's receivables increased 2.06% from the beginning of the period to $3.402 billion, inventory and contract assets changed -7.69% from the beginning of the period to $5.499 million, and advance accounts and contract liabilities increased 11.64% from the beginning of the period to $999 million.
The fixed increase is expected to improve the asset structure, and the spin-off listing is worth looking forward to. The company issued a fixed increase plan in the first half of the year. The proposed capital will not exceed 1.22 billion yuan. If successfully implemented, it will effectively improve the balance and liability structure. At the same time, Hengrun Technology Group is steadily advancing its spin-off into the GEM listing. If the spin-off is successful, it is also worth looking forward to raising the company's current valuation level. The company's EPS for 2020-2021 is expected to be 0.20 yuan and 0.25 yuan, corresponding to the 2020/08/26 stock price PE of 21.56 times and 17.19 times, maintaining the “buy” rating.
Risk warning
1. The growth rate of infrastructure investment fell short of expectations;
2. The company's overseas business lost a lot.