Events: the company recently released its 2017 mid-year report. During the reporting period, the company achieved operating income of 455.8966 million yuan, down 9.03% from the same period last year. The net profit of returning to the home was-97.5338 million yuan, down 11.64% from the same period last year. The net profit after deduction was-106.2068 million yuan, down 17.89% from the same period last year.
The revenue and gross profit margin of the hotel business increased slightly, among which the revenue of the guest room sector increased significantly. During the reporting period, the company's hotel business achieved operating income of 450 million yuan, an increase of 1.33% over the same period last year, and a gross profit margin of 60.30%, an increase of 1.26% over the same period last year. Of this total, the income from the catering sector was 166 million yuan, down 0.68% from the same period last year; the income from the guest room sector was 207 million yuan, an increase of 7.25% over the same period last year, and the overall occupancy rate of guest rooms was 63.28%, up slightly from 62.08% in the same period last year.
Income from the real estate business has decreased significantly. At present, the company's real estate business is mainly out of inventory, and there are no new projects. As the inventory of real estate projects is mainly commercial real estate, it is difficult to remove. The company's real estate business income dropped sharply in the first half of the year, down from 50.91 million in the same period last year to 2.45 million. At present, the company's self-developed real estate business mainly includes Zhangjiajie Huatiancheng project, Yiyang Yincheng Huatian project, Beijing Haobo base project, and cooperative development including Yongzhou Huatiancheng project and Huitang Huatiancheng project. The current real estate sales income mainly comes from the Yiyang project, with a sales area of about 3100 square meters.
The change of leadership, the change of business thinking and the operation of light assets are expected to accelerate. In April 2017, the chairman of the company was replaced, and then the management of the company was greatly adjusted. The new chairman is young, energetic and has rich management experience, and the business thinking of the company's hotel business has been further adjusted, establishing the guiding ideology of "giving priority to the high end, supplemented by the middle end", supplemented by the transformation idea of "becoming a manager rather than an owner". It is expected that in the second half of the year, the company will strengthen the operation of the light asset model, increase the disposal of existing assets, invigorate existing assets, and improve the company's assets and liabilities.
The revaluation of assets has huge room for appreciation, and there are expectations of performance improvement. The company owns a large number of self-owned properties, which are generally acquired earlier, and the present value is generally low after years of depreciation and amortisation. In recent years, the hot real estate market has brought substantial appreciation to the company's own properties. The idea of the company's light assets operation is to operate and manage its own properties by leasing or management output after sale. The two main reasons for the company's current losses are the high financial expenses and the high amount of depreciation and amortization, and property sales can bring improvement in two aspects at the same time. If the light asset policy goes ahead smoothly in the second half of the year, the company's annual performance is expected to turn around.
The reform of mixed ownership is in the vanguard, and the mechanism is complementary to improve the governance structure. The second shareholder, Huaxin Hengyuan, participated in the fixed increase in November 2015 at 1.65 billion yuan, with a cost price of 5.51 yuan and a shareholding ratio of 29.44%, which is close to the 32.48% shareholding of the major shareholder Huatian Group, and currently holds half of the four seats on the company's board of directors. Huaxin Hengyuan's participation will help to give full play to the advantages of the state-owned system and private mechanism, further improve the corporate governance structure and accelerate the process of corporate marketization.
Investment suggestion: it is expected that the company will accelerate the realization of loss-making assets and improve its asset-liability structure in the next three years. As a result, it is predicted that the EPS for 2017-2019 will be RMB 0.13, RMB 0.23, and RMB 0.29, giving it a "buy".
Rating, corresponding to 30 times PE in 2018, with a target price of 7.0RMB.
Risk tips: the operation speed of the company's assets is lower than expected; the operating environment of the company's hotel business continues to deteriorate; the speed of completion of projects under construction is lower than expected.