Introduction to this report:
Performance increased -75% in the first three quarters/Q3 increased -32%; driven by ecology+cultural tourism, they are optimistic about a steady recovery in core business growth; the proposed spin-off of Hengrun's listing is expected to boost overall valuation, and participation in MCN will boost the influencer economy.
Key points of investment:
Maintain the increase in holdings. Revenue of 4.52 billion yuan (-14%) for the first three quarters, net profit of 76.39 million yuan (-75%), net profit of 52.72 million yuan (-83%) for the first three quarters fell short of expectations. Since H1 was more affected by the epidemic and Q3 was more affected by rain, climate, and weather in many places, the company's EPS for 2020-22 was lowered to 0.17/0.24/0.31 yuan (originally 0.23/0.28/0.34 yuan) growth rate of -20/41/ 28%, maintaining the target price of 5.16 yuan. The target price corresponds to 2020/21/22 30.4/ 21.5/16.6 times PE, maintaining the increase in holdings.
Gross and net interest rates have declined, and operating cash flow is still under pressure. 1) Q1-Q3 single-quarter revenue growth rate -72/1.6/ 0.3%, net profit growth rate to the mother -644/2.4/ -32%, non-deducted growth rate -682/-6.5/ -34%; 2) gross profit margin for the first three quarters 19.1% (-5.2 pct); net interest rate 1.7% (-4.3pct); 3) The cost rate for the period was 16.1% (+0.2pct), which managed 6.1% (-1pct) /R&D 5.1% (+1.9pct) /finance 3.7% (+0.2pct); assets 3.7% (+0.2pct); 4 Debt ratio 72.4% ( -0.4 pct); 5) Net operating cash flow - 400 million yuan (same period last year - 140 million yuan). Project payments/material payments increased due to accelerated construction progress, and Q1-Q3 was -45/54/-5.1 billion yuan in a single quarter.
Focusing on the dual drive of ecology and cultural tourism, the proposed spin-off of Hengrun Technology's listing is expected to boost valuation. 1) Focusing on ecological environment+cultural tourism, it has the three core businesses of ecological environment construction and restoration/water and water environment treatment/cultural tourism; 2) A model dominated by professional group management has been formed to continue to deepen collaborative and sustainable development of related industries, which will build a solid foundation for the entire industry chain; 3) The proposed spin-off of the subsidiary Hengrun Technology will focus on R&D/design/production/integration of immersive amusement equipment systems; 4) The participating MCN microbroadcast (holding about 22% of the shares) will benefit the influencer economy.
Adequate monetary funds in hand, combined with proposed increases, will ensure the smooth progress of the project. 1) It is proposed to raise no more than 466 billion shares (current total share capital of 1.53 billion shares) from no more than 35 specific investors, which will be used to advance and replenish current projects, as approved by the Securities Regulatory Commission; 2) As of the end of Q3, about 2.25 billion yuan of monetary capital in hand was the second highest in the same industry. The combined fixed increase will facilitate the smooth implementation of the projects/optimize the capital structure/reduce financial risk/enhance credit and financing capacity.
Risk warning: capital mitigation shifts to austerity, new business promotion falls short of expectations, etc.
