3Q20 performance is lower than the previous forecast and our expectations.
Lingnan shares announced its results for the third quarter of 2020: the operating income in the first three quarters was 4.52 billion yuan, down 14.2% from the same period last year, and the net profit from its mother was 76.39 million yuan, down 74.9% from the same period last year. The net profit from its mother was 1.97 billion yuan, up 0.3% from the same period last year, and its net profit was 65.32 million yuan, down 31.8% from the same period last year. Due to the lower-than-expected revenue recognition and the decline in gross profit margin, the performance of 3Q20 was lower than the previous forecast and our expectations.
The company's 3Q20 gross profit margin fell by 4.1ppt to 17.4%; the management expense rate decreased by 1.7ppt to 4.5% compared with the same period last year, mainly due to strengthened cost control; the R & D expenditure rate increased by 1.7ppt to 5.4% compared with the same period last year, mainly due to increased investment in R & D; the total loss of asset and credit impairment decreased by 25.6% to 20.81 million yuan compared with the same period last year; and the effective tax rate decreased by 36.8ppt to-23.9% compared with the same period last year. 3Q20 net interest rate fell 1.6ppt to 3.3% compared with the same period last year.
The company's 3Q20 has a net operating cash outflow of 511 million yuan (compared with a net inflow of 151 million yuan in the same period last year), which we believe is mainly due to the acceleration of payment turnover.
Trend of development
3Q20 revenues were flat year-on-year, while gross margins were under pressure. In the first three quarters, the company announced that the bid-winning orders totaled 7.8 billion yuan, which was somewhat repaired compared with the same period last year (3.5 billion yuan in the first three quarters). On the revenue side, 1Q/2Q/3Q20 's revenue was-73%, respectively, compared with the same period last year. After 1Q was significantly affected by the epidemic, 2-3Q basically returned to the same level as the same period last year. However, we believe that the decline in the number of newly signed orders (2019 announced winning orders is-68% year on year) still poses some pressure on revenue growth. 3Q20's gross profit margin is 17.4%, which is lower than the same period last year and month-on-month. We suggest that we continue to pay attention to the cost control of the company.
The net debt ratio increased month-on-month. The company's net debt ratio at the end of 3Q20 was 66.3%, up from 54.6% at the end of 2Q20. In the first three quarters, the company had a net operating cash outflow of 410 million yuan and a net investment cash outflow of 670 million yuan, which was larger than that of the same period last year. The company announced on October 12 that the company's proposed private offering of 4.6 billion shares was approved by the CSRC; we believe that transactions such as the fixed increase of the company in the future and the split listing of the subsidiary Hengrun Group are expected to help reduce the company's net debt ratio. We suggest to continue to pay attention to the repair of the company's endogenous cash flow and the progress of external financing transactions.
Profit forecast and valuation
Due to the lower-than-expected progress of the company's revenue recognition, we lowered our 2020 Universe net profit forecast for 2021 by 57% to 160.19 billion yuan. The current share price corresponds to 36x/30x2020/2021e Pamp E. We maintain our neutral rating and downgrade our target price by 12% to 3.88 yuan, corresponding to 37x/31x 2020Unix 2021e PPink E, which has 3.2% upside compared to the current share price.
Risk.
Cash rebates were lower than expected; net debt ratio continued to rise.
