The company recently released its 2018 semi-annual report, with revenue of 402 million yuan in the first half of the year, an increase of 12.81%, and a net profit of 105 million yuan, an increase of 54.75%. The comments are as follows:
With steady revenue growth, high gross profit margin will probably be maintained.
Benefiting from the improvement of the concentration of the design industry and the regional leading position, the company achieved revenue of 402 million yuan in the first half of the year, an increase of 12.81%, of which the revenue of the survey and design business was 307 million yuan, an increase of 4.96%. The 11 regional operation centers gradually established by the company (6 outside the province and 5 in the province) are expected to be in force in the second half of the year. With the improvement of the policy margin, from deleveraging to stable leverage, it is expected that the growth rate of infrastructure investment has bottomed out and will rebound in the second half of the year, so we believe that there should be a good growth in new orders signed by the company in the second half of the year.
The major asset restructuring in which the company plans to acquire no less than 67% of the shares of China International is being carried out in an orderly manner. Zhongfeng International, formerly known as Zhengzhou Design and Research Institute of the Ministry of Coal Industry, is one of the key design institutes of the former Ministry of Coal Industry, and the first batch of Grade An industrial design institutes approved in the country have strong technical strength and strong synergy with the company in business. Sinopec International achieved revenue of 426 million yuan in 2017, and if the restructuring is successful, it is expected to greatly increase the company's performance.
The company's gross profit margin in the first half of the year was 47.12%, an increase of 1.26 percentage points, of which the gross profit margin of the survey and design business was 48.57%, down 1.31% from the same period last year, but it was still high among comparable companies, showing the company's strong technical strength, order-taking ability and cost control. With the rebound of infrastructure investment in the second half of the year, the market bargaining power of the company's survey and design business is likely to be further improved, and the high gross profit margin will be maintained.
During the period, the expense rate decreased, and the high increase in non-recurrent profit and loss was the main reason for the rapid growth of net profit.
The company's expense rate during the first half of the year was 14.95%, a slight increase of 0.15% over the same period last year. Among them, the management expense rate increased by 0.45% to 12.29%, mainly due to the rapid increase of R & D expenses by 71%; the financial expense rate decreased by 0.38% to 0.43%, which was due to the rapid increase in interest income; and the sales expense rate was basically the same. The loss of impairment of assets was 36.65 million yuan, an increase of 51%, due to the increase in the provision of bad debts. The non-recurrent profit and loss was 28.61 million yuan, which mainly benefited from the disposal of non-current assets (Hospital 83). Overall, the company's net interest rate in the first half of the year was 26.21%, an increase of 7.10%, a deduction of 76.66 million yuan, an increase of 12.65%, and a net profit of 105 million yuan, an increase of 54.75%.
Operating cash flow is expected to improve in the second half of the year.
During the reporting period, the company's cash-to-cash ratio was 0.71, down 22 percentage points from the same period last year; the cash-to-payment ratio was 0.65, an increase of 2 percentage points over the same period last year; and the payback did deteriorate in the first half of the year under the tight credit environment. In summary, the net cash flow of the company's operating activities is-86.81 million yuan (compared with + 10.14 million yuan in the same period last year). We believe that with the gradual easing of capital brought about by the marginal improvement of policy and the widespread fourth-quarter payback peak in the design industry, we expect the company's operating cash flow to improve significantly in the next half year.
Investment suggestion
The main investment logic of the design industry is not the level of market prosperity, but the improvement of market concentration. The net profits of infrastructure design companies that have published semi-annual reports have all achieved good growth. The marginal improvement of policies in the second half of the year and the high probability of a rebound in the growth rate of infrastructure investment will directly benefit a number of leading infrastructure design enterprises, including the Institute. In the current round of construction plate valuation repair market, the company valuation repair efforts are far less than comparable companies in the same industry, we believe that the company already has a higher risk-income ratio. As a result, we upgraded the company's rating from "overweight" to "buy". The company paid dividends and increased its share capital with a provident fund in May, and accordingly we adjusted the target price to 49.46 yuan per share.
Risk hints: project schedule is not as expected; infrastructure investment is not as expected; uncertainty risk of major asset restructuring