> **来源：[研报客](https://pc.yanbaoke.cn)** # Hilong Holding (01623:HK) Summary ## Core Content Hilong Holding (01623:HK) is a company operating in the utilities sector, with a focus on oilfield equipment and services. The report, dated 24 August 2018, provides an in-depth analysis of the company's financial performance, valuation metrics, and market outlook. ## Financial Performance ### Revenue and Profit - **1H18 Revenue**: Rmb1.5 billion (+20% YoY), slightly below the forecast of Rmb2.7 billion. - **1H18 Net Profit**: Rmb70.8 million (+8% YoY), in line with the forecast of Rmb65 million. - **EPS**: Rmb0.10 for 2018E, Rmb0.14 for 2019E, and Rmb0.18 for 2020E, showing consistent growth. - **Net Margin**: Remained flat at 5%, despite a 42% increase in financial expenses due to forex losses. ### Operating Margin - **Operating Margin**: Increased by 5 percentage points to 16% in 1H18, driven by a 13.8% reduction in selling, general, and administrative expenses. ## Key Financial Metrics ### Valuation Ratios - **PE (Price to Earnings)**: 7.05x for 2018E, 5.06x for 2019E, and 4.03x for 2020E. - **PB (Price to Book)**: 0.35x for 2018E, 0.32x for 2019E, and 0.30x for 2020E. - **EV/EBITDA**: 1.81x for 2018E, 1.57x for 2019E, and 1.43x for 2020E. ### Operating Ratios - **Gross Profit Margin**: Increased to 32.15% in 2018E, up from 31.68% in 2017. - **Ebitda Margin**: Improved to 21.64% in 2018E, up from 18.90% in 2017. - **ROE (Return on Equity)**: Increased to 4.91% in 2018E, from 3.69% in 2017. - **Debt-to-Asset Ratio**: Declined to 31.25% in 2018E, from 37.65% in 2016. ## Order Inflow and Growth - **High-Margin Orders**: The company secured a Rmb173 million contract for high-margin coating services, equivalent to 69% of the 2017 coating revenue. - **EPC Project Revenue**: Increased by 112% YoY, contributing to a 23% growth in the oilfield service segment. - **Oilfield Service Segment**: Generated 32.3% of the gross profit in 1H18, with a 6 percentage point increase in gross margin to 37%. - **Pipeline Services Segment**: Gross margin increased by 8 percentage points to 35%, driven by growth in OCTG coating and CRA services. ## Balance Sheet and Liquidity - **Inventory Days**: Remained stable at 164 days in 1H18. - **Receivable Days**: Declined from 238 to 217 days in 1H18. - **Payable Days**: Declined from 119 to 118 days in 1H18. - **Current Ratio**: Increased to 2.43 in 1H18 from 2.16 in 2H17. - **Net Assets per Share**: Increased to Rmb2.07 in 2018E, from Rmb1.92 in 2016. ## Risks and Challenges - **Forex Losses**: Due to the depreciation of the Russian Ruble, the company recorded Rmb11.4 million in operating forex losses in 1H18. Including dollar-denominated debt, total forex losses reached Rmb40.3 million, accounting for 56.9% of the 1H18 net profit. - **Market Conditions**: The report notes a weak market sentiment, leading to a revised target price of HK$1.06 from HK$1.36, corresponding to an 8.0x PE for 2018E. ## Investment Recommendation - **Rating**: "Outperform" - **Target Price**: HK$1.06 (8.0x 2018E PE) - **Upside Potential**: 19.1% from current price to target price - **EPS Forecasts**: Rmb0.10 (2018E), Rmb0.14 (2019E), Rmb0.18 (2020E), with consistent YoY growth of 43%, 40%, and 29% respectively. ## Conclusion Hilong Holding demonstrated solid performance in 1H18, with revenue and net profit growing in line with expectations. The company's efforts in improving product mix and enhancing profitability in key segments contributed to its strong financial position. Despite forex-related challenges, the company's balance sheet remains robust, and its operating margins have improved. The report recommends "Outperform" due to the company's growth potential and upside to the revised target price.