Lianmei Holdings (600167) 2019 Third Quarterly Report Review: Growth Meets Expectations Multi-pronged Demand for Heating Policy Guarantees Continuous Optimization of Operating Environment

Lianmei Holdings (600167) 2019 Third Quarterly Report Review: Growth Meets Expectations Multi-pronged Demand for Heating Policy Guarantees Continuous Optimization of Operating Environment
Matters: The company released the third quarter report of 2019, and the revenue from Q1 to Q3 of 2019 was 19.3% ten percent, an annual increase of 10.6%; realized net profit attributable to mother 9.200 million, an annual increase of 25.1%.Among them Q3 operating income 2.9% ten percent, an increase of 15 per year.7%, net profit attributable to mother in a single quarter1.0 ppm, an increase of 17 per year.7%; deducting non-net profit increases 220% to 0 every year.9.6 billion yuan.  Comment: The change in business structure drove a steady increase in gross profit margin.The company’s 2019Q1-Q3 comprehensive gross profit margin was extended and increased by 4.7 points to 50.5%, of which Q3 gross margin increased significantly by 30.7pct to 32.4%. Considering that Q3 is a non-heating season, the gross profit margin should increase and should be contributed by a high gross margin and stable advertising business, which can replace or reflect the smooth progress of the company’s Internet connection business.Considering that the gross profit margin of the company’s heating business has basically remained stable in recent years, driven by the steady price increase of Zhaoxun Media, the company’s future profitability still has room for upside.  Structural adjustments to the expense ratio, maintaining overall stability.The company’s Q1 to Q3 2019 sales expense ratio increased by 1.9 points to 3.2%, still mainly affected by the development of Zhaozhaoxun’s media business; the reduction in management expense ratio decreased by 0.8 points to 5.6%, through the continuous expansion and improvement of the scale of the pipe network and terminal business, the management efficiency is effectively improved under the scale effect; the financial expense ratio is affected by the decline in interest income from -10.9% rose to -6.0%, the overall cost control remains good, and net profit increases by 5 per year.0pct to 48.4%, the net profit margin replacing non-recurring gains and losses such as one-off government 南京夜网 subsidies has increased significantly12.8 points to 46.5%.Policy end: Clean heating is promoted in the northern region, and it is included in Shenyang’s public heating charge regulations to further refine and benefit long-term development.According to the action plan for the comprehensive treatment of air pollution in the autumn and winter of 2019-2020, while maintaining alignment for clean heating, it also proposes to adapt to local conditions, adapting coal to coal, and heating to more flexible ways that are conducive to clean combustion.Promotion of coal central heating.At the same time, the Shenyang district heating charge regulations have been further refined, and details such as the beneficiaries, responsible parties, and non-residential additional heating charges have been clarified to promote the efficiency of the heating market, which is also conducive to the further improvement of settlement charges.Standardization, it seems harder, and guarantees revenue and payment.  The extension layout improves the robustness of the company’s overall performance.In terms of heating, the company acquired a 66% equity interest in Shandong Heze Fulin Thermal Power in May 2019, and the commitment to maintain a minimum sales volume of 100 tons of industrial steam in the coming year is expected to bring stable income growth.In terms of advertising business, Zhaoxun Media has contracted over 500 sites by H1 in 2019. We expect that the sites operating in 2019 are expected to grow by 30%. At the same time, the price of publications will continue to increase driven by supply and demand.The price rise is more certain.  Investment suggestion: The company’s main heating industry’s heating area maintains a steady growth, the media business is still striving to contribute to the performance flexibility, and abundant cash on hand has provided an impetus for expansion.We expect the company to achieve net profit attributable to mothers respectively from 2019 to 202015.97 billion, 18.7.2 billion, an annual increase of 21.2%, 17.2%; corresponding PE is 12, 11 times, combined with the company’s historical PB-ROE level and considering the company’s compound growth rate of more than 18% in the next three years, the target price is still maintained.8 yuan, maintaining the “strong push” level.  Risk warning: heating area expansion is less than expected; coal prices have risen sharply; advertising business expansion has fallen short of expectations.

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