Performance review
Maintain neutrality
1H19 performance is slightly lower than we expected.
The company announced 1H19 results: revenue was 4.801 billion yuan, down 11.35% from the same period last year; net profit from home was 346 million yuan, down 43.05% from the same period last year; after deduction, net profit from home was 186 million yuan, down 68.6% from the same period last year, mainly due to the fact that the company received 160 million yuan from industry support funds and government subsidies this year. 1H19 earned 0.214 yuan per share, slightly lower than expected.
The decline in the company's performance is mainly due to the strategic adjustment of the company and the reduction of engineering construction business. 1) the revenue from municipal construction, environmental protection consulting and installation and technical consulting services decreased by 47.72% from 32.81% to 777.67 million yuan respectively; 2) the revenue from sewage treatment, solid waste treatment and sanitation services increased by 96.54% and 93.28%, respectively, to 3.31q1.95 billion yuan, mainly due to the gradual improvement of production capacity in various sectors. 3) revenue from renewable resources business fell 39.63% to 610 million yuan, mainly affected by the decline in the amount of home appliances dismantled.
The company's gross profit margin fell significantly, and 1H19's gross profit margin decreased by 8.3ppt to 24.8% compared with the same period last year.
The cost control of the company is better, the period expenses are down, and the sales expenses / management expenses (including R & D) / financial expenses rates are increased from-0.9ppt/-3.6ppt/1.5ppt to 1.5% to 5.7% and 7.1% respectively.
Trend of development
The company's strategic adjustment, focusing on operational projects, short-term performance downward pressure is greater, cash flow has greatly improved. The decline in the company's performance is mainly caused by the initiative to shrink investment, fewer engineering projects and focus on operational projects. The company increased the quality of money back, cash flow greatly improved, 1H19 operating cash flow-157 million yuan (the same period last year:-1.044 billion yuan). The company has continuously introduced Xiongan Group and Agricultural Bank of China investment, which we think is conducive to the promotion of the project on hand. Investors are advised to pay attention to the improvement of the company's balance sheet in the future.
Profit forecast and valuation
Due to the short-term pressure on the company's performance, we cut our net profit by 2019 and 2020 by 17% and 16% to 6.37 and 711 million yuan. The current share price corresponds to a price-to-earnings ratio of 22.5 times 2019 and 20.1 times 2020 times earnings. Maintain a neutral rating, but due to the lower earnings forecast, we cut our target price by 16% to 11 yuan, corresponding to 24.4 times 2019 times earnings and 22.0 times 2020 times earnings, which is 10% upside from the current share price.
Risk.
Financing risk, project promotion is not as expected.
