The performance in the first half of 2020 is basically in line with our expectations.
Lingnan shares announced its results in the first half of 2020: the income was 2.55 billion yuan, down 22.8% from the same period last year, and the net profit was 11.07 million yuan, down 94.7% from the same period last year. 2Q's income in a single quarter was 2.25 billion yuan, an increase of 1.6% over the same period last year, and its net profit was 180 million yuan, an increase of 2.4% over the same period last year.
The performance is in line with the forecast and our expectations. The company expects to achieve a net profit of 90 million yuan to 135 million yuan in the first three quarters of 2020, compared with-70.5% and 55.7%, corresponding to 3Q's net profit of 78.93 million yuan to 124 million yuan, and 29.3% of 3Q in the same period last year.
2Q20's gross profit margin decreased by 4.2ppt to 20.4% year-on-year and continued to decline; the total expense rate decreased by 2.2ppt to 10.8%; the total loss of asset and credit impairment increased by 12% to 41.98 million yuan; the investment income was 22.98 million yuan (2Q19 was 210000 yuan), mainly due to the recognition of investment income by the disposal of six subsidiaries, including Shanghai Hengrun Shenqi Exhibition Company; the effective tax rate was reduced by 10.3ppt to 4.7% compared with the same period last year. 2Q achieved a net interest rate of 8.1%, an increase in 0.1ppt compared with the same period last year. 2Q20 operating cash flow net inflow of 540 million yuan, year-on-year expansion of 370 million yuan, mainly due to the slowdown in payments.
Trend of development
Newly signed orders are repaired; gross margin continues to be under pressure. In the first half of the year, the company's total revenue decreased by 23% compared with the same period last year, which we believe is mainly due to the operation of 1Q company affected by the epidemic; among them, the revenue from ecological environment and cultural tourism decreased by 41% and 54% respectively from the same period last year, and the revenue from water environment management increased by 10% compared with the same period last year. In the first half of the year, the company announced that the bid-winning orders totaled 69.96 million yuan, an increase of 98% over the same period last year, and the repair was achieved under a low base. However, the company's gross profit margin continued to be under pressure, with 1Q20 and 2Q20's gross profit margin falling by 8.1ppt and 4.2ppt to 20.9% and 20.4% respectively compared with the same period last year.
We suggest to continue to pay attention to the company's order repair and cost control.
Operating cash flow repair; pay attention to the progress of external financing. The net operating cash inflow of 2Q company expanded compared with the same period last year, continuing the improvement trend of 1Q. At the same time, external financing continued to advance: in February 2020, the company announced a pre-plan for a non-public offering of A shares, with a financing scale of no more than 1.22 billion yuan; May announced that the subsidiary Hengrun Group would be spun off to be listed on the growth Enterprise Market. We believe that the smooth implementation of relevant financing transactions in the future will help the company to reduce its debt ratio, enhance its financial strength, and then help the company's orders and revenue repair. It is recommended to follow the progress of the relevant transactions.
Profit forecast and valuation
Keep profit forecasts for 2020 and 2021 unchanged. The current share price corresponds to 17.2 times 2020 / 2021 / 14.0 times earnings. Maintain the target price of 4.42 yuan, corresponding to 18.0 times 2020 price-to-earnings ratio and 14.6 times 2021 price-to-earnings ratio, 4.3% upside from the current stock price, and maintain a neutral rating.
Risk.
Newly signed orders were repaired less than expected; gross margin continued to be under pressure.
