24 Mar

Sinochem (601117): Engineering gross margin growth continues with prudent PPP strategy to promote strong cash flow protection

Sinochem (601117): Engineering gross margin growth continues with prudent PPP strategy to promote strong cash flow protection

Company dynamics keep outperforming industry companies. We have recently studied China Chemicals and merged with the company to communicate the recent operating conditions and long-term development strategies. The specific content is as follows.

  Comment on the traditional chemical engineering to consolidate its advantages and increase the gross profit margin to maintain a high level.

At present, there is fierce competition in the field of chemical engineering. The company plans to continue to consolidate its design advantages in coal chemical industry and basic chemical industry, and continue to vigorously develop design to lead its general contracting business.

In the first three quarters, the EPC business accounted for about 44% of the company’s engineering contract orders. We expect the EPC business to remain stable in the future and drive the company’s gross profit margin to remain high.

  Continue to actively develop infrastructure and environmental protection businesses.

Based on the chemical engineering business, the company actively develops infrastructure and environmental engineering contracting businesses that are related to the company’s traditional competitive advantages.

1) Infrastructure business: The company plans to continue to respond to national strategies such as the Yangtze River Grand Conservation and actively contract related infrastructure projects. It plans to have infrastructure revenue of 10 billion yuan within 2-3 years (we estimate that the proportion of revenue from the corresponding engineering contracting business is about 8-10%); 2)Environmental protection business: The company plans to continue its business development in the environmental protection fields such as industrial wastewater treatment and soil treatment through endogenous and extended M & A.

  Carefully develop PPP business.

Since 2019, under the background of relatively tight local government funds, the company has developed a PPP business with an appropriate and cautious attitude and strictly controlled the project acceptance standards. The projects undertaken are mainly provincial capitals, municipalities directly under the central government, second-tier corporate resident sites, and other repayment capabilities.s project.

We believe the company’s prudent PPP development strategy helps control operating risks and related investment expenditures, and maintains a strong level of cash flow.

  The industrial sector has strong earnings and is expected to continue to advance 杭州桑拿 in the future.

The company’s caprolactam project, Indonesian power plants and other industries have strong profitability of investment assets. In the first half of 2019, the company’s industrial and other businesses achieved gross profit margins.

6%, significantly higher than the company as a whole, accounting for 23% of gross profit in the first half.

In July 2019, the company announced that it plans to participate in the investment and construction of a nylon 66 new material industrial base with an annual output of 100 tons. If the project is successfully put into production, it is expected to achieve a better level of profitability.

We believe that the company is expected to continue to promote industrial investment in high-end chemicals and other fields in the future, driving the company’s overall profitability to 北京桑拿洗浴保健 continue to improve.

  Estimates suggest that the current company meets the corresponding.

3x 2019e P / E.

We maintain our profit forecast and outperform the industry rating and target price of 7.

1 yuan is unchanged, corresponding to 13x 2019e P / E and 14% uplink space.

  The fierce competition in risky chemical projects has put pressure on gross profit margins, and the profitability of investment assets has fallen short of expectations.