东方园林(002310) - 2017 Q2 - 季度财报

Important Notes, Table of Contents, and Definitions Important Notes and Definitions This chapter includes the company's Board of Directors' assurance statement on the truthfulness, accuracy, and completeness of the report, clarifies the plan not to distribute profits for the first half of 2017, and provides definitions for key terms such as PPP (Public-Private-Partnership) and the reporting period (January 1 to June 30, 2017) - The company's Board of Directors, Supervisory Board, and all senior management guarantee the truthfulness, accuracy, and completeness of this semi-annual report and assume corresponding legal liabilities[3] - The company plans not to distribute cash dividends, bonus shares, or convert capital reserves into share capital for the first half of 2017[5] - The reporting period is defined as January 1, 2017, to June 30, 2017[9] Company Profile and Key Financial Indicators Company Profile and Key Financial Data This chapter provides the company's basic information and key financial data for the first half of 2017, showing operating revenue of 4.984 billion CNY, a 70.79% year-over-year increase, and net profit attributable to shareholders of 468 million CNY, up 57.40%, despite a 59.50% decrease in net cash flow from operating activities Key Accounting Data and Financial Indicators for H1 2017 | Metric | Current Period | Prior Year Period | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Operating Revenue (CNY) | 4,984,296,874.06 | 2,918,337,385.86 | 70.79% | | Net Profit Attributable to Parent (CNY) | 467,661,973.81 | 297,113,027.66 | 57.40% | | Net Profit Attributable to Parent (Excluding Non-Recurring Items) (CNY) | 586,034,003.49 | 255,449,019.36 | 129.41% | | Net Cash Flow from Operating Activities (CNY) | 222,991,167.67 | 550,588,642.98 | -59.50% | | Basic Earnings Per Share (CNY/share) | 0.17 | 0.12 | 41.67% | | Weighted Average Return on Net Assets | 4.98% | 4.65% | 0.33% | | Total Assets (CNY) | 25,886,069,365.25 | 24,010,502,433.20 | 7.81% (Period-end vs. Prior Year-end) | | Net Assets Attributable to Parent (CNY) | 9,584,957,908.50 | 9,190,103,932.36 | 4.30% (Period-end vs. Prior Year-end) | Non-Recurring Gains and Losses for H1 2017 | Item | Amount (CNY) | | :--- | :--- | | Gains/Losses on Disposal of Non-Current Assets | -122,072,703.44 | | Government Grants Recognized in Current Period P&L | 3,099,999.06 | | Other Non-Operating Income/Expenses and Defined P&L Items | 1,423,583.48 | | Total | -118,372,029.68 | Company Business Overview Main Business and Core Competencies During the reporting period, the company successfully transformed into a comprehensive enterprise with water system management, solid and hazardous waste treatment, and all-area tourism as its three core businesses, primarily operating through the PPP model, leveraging its first-mover advantage, diverse water treatment technologies, extensive PPP experience, growing brand influence, and comprehensive employee incentive programs to build strong core competencies - The company's strategic transformation is maturing, forming three core business segments: - Water System Management: Covers urban black and odorous water body treatment, river basin management, and sponge cities - Solid and Hazardous Waste Treatment: Involves resource recycling, waste treatment, industrial hazardous waste valorization, and harmless disposal - All-Area Tourism: Adopts an 'investment + construction + operation' three-wheel-drive model[24][27] - The company's business is primarily conducted through the PPP (Public-Private-Partnership) model, which involves jointly establishing project companies (SPVs) with governments for project investment, financing, and operation[24] - The company's core competencies include: - Water System Management First-mover Advantage: Proposed the 'three-in-one' ecological comprehensive management concept, becoming an industry leader - Water Treatment Technology Synergy: Optimized water treatment technology advantages through the acquisition of Shanghai Liyuan and Zhongshan Environmental - PPP Model Experience: Early strategic planning, forming alliances with multiple financial institutions for rapid project implementation - Brand Influence: Undertook multiple national-level and key projects, achieving high brand recognition - Collection Guarantee: Introduced financial institutions to ensure the recovery of accounts receivable from traditional projects - Employee Incentives: Launched employee stock ownership plans and equity incentives to motivate employees[29][31][32][33][34][36] Management Discussion and Analysis Overview In the first half of 2017, the company achieved significant results in its strategic transformation year, maintaining stable performance growth with operating revenue reaching 4.984 billion CNY, a 70.79% year-over-year increase, and net profit attributable to parent reaching 468 million CNY, up 57.40%, while expanding PPP projects and strategically entering all-area tourism and hazardous waste treatment sectors H1 2017 Operating Performance Overview | Metric | Amount | Year-over-Year Growth | | :--- | :--- | :--- | | Operating Revenue | 4.984 billion CNY | 70.79% | | Net Profit Attributable to Parent | 468 million CNY | 57.40% | | Total Investment Amount of Winning PPP Bids | 28.611 billion CNY | - | | Total Winning Bid Amount of Projects | 30.294 billion CNY | 24.52% | - The company's business expanded rapidly, establishing 12 new SPV companies during the reporting period, totaling 44, laying the foundation for PPP project construction and financing[40] - The company launched new all-area tourism businesses, with two projects landed totaling approximately 3.88 billion CNY in investment, while continuously expanding its hazardous waste treatment strategic layout through acquisitions of companies like Nantong Jiuzhou Environmental and Hangzhou Lvjia[40] Main Business Analysis The company's main business revenue achieved rapid growth of 70.79%, primarily due to sufficient PPP orders and project implementation, with environmental protection business and nursery stock sales showing particularly strong growth of 137.45% and 2,403,282.09% year-over-year, respectively, and the fastest revenue growth observed in North China, Northeast China, and East China regions Key Financial Data Year-over-Year Changes | Item | Current Period (CNY) | Prior Year Period (CNY) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Operating Revenue | 4,984,296,874.06 | 2,918,337,385.86 | 70.79% | | Operating Costs | 3,392,258,073.29 | 2,068,489,638.80 | 64.00% | | Selling Expenses | 18,159,609.24 | 8,313,704.20 | 118.43% | | Administrative Expenses | 538,736,981.38 | 308,564,206.35 | 74.59% | | R&D Investment | 113,305,097.11 | 66,259,539.69 | 71.00% | | Net Cash Flow from Financing Activities | 966,610,370.43 | -22,239,157.31 | 4,446.43% | Operating Revenue Composition (by Industry) | Industry | Current Period Revenue (CNY) | Proportion of Total Revenue | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Engineering Construction | 3,732,146,633.80 | 74.88% | 56.31% | | Environmental Protection Business | 980,278,948.90 | 19.67% | 137.45% | | Design and Planning | 141,313,832.29 | 2.84% | 19.97% | | Nursery Stock Sales | 118,727,075.03 | 2.38% | 2,403,282.09% | Operating Revenue Composition (by Region) | Region | Current Period Revenue (CNY) | Proportion of Total Revenue | Year-over-Year Change | | :--- | :--- | :--- | :--- | | East China Region | 2,069,365,563.54 | 41.52% | 104.94% | | North China and Northeast China Regions | 1,453,943,515.31 | 29.17% | 231.33% | | Northwest and Southwest China Regions | 791,211,912.87 | 15.87% | 8.06% | | Central and South China Regions | 669,775,882.34 | 13.44% | -9.20% | Non-Core Business Analysis During the reporting period, the company's non-core businesses negatively impacted profit, primarily due to a 121 million CNY investment loss from subsidiary disposal and 109 million CNY in asset impairment losses from provisions for accounts receivable and other receivables Non-Core Business P&L | Item | Amount (CNY) | Proportion of Total Profit | Reason for Formation | | :--- | :--- | :--- | :--- | | Investment Income | -120,693,955.89 | -18.76% | Primarily investment loss from subsidiary disposal | | Asset Impairment | 109,458,032.64 | 17.02% | Primarily provision for impairment of accounts receivable and other receivables | Asset and Liability Analysis As of the end of the reporting period, the company's total assets were 25.886 billion CNY, a 7.81% increase from the prior year-end, with inventories and accounts receivable constituting significant portions at 36.00% and 22.23% respectively, and 714 million CNY in restricted assets primarily comprising cash used as deposits and fixed/intangible assets pledged for borrowings Asset Composition (Proportion of Total Assets) | Asset Item | Current Period-end | Prior Year-end | | :--- | :--- | :--- | | Cash and Equivalents | 11.95% | 12.63% | | Accounts Receivable | 22.23% | 21.01% | | Inventories | 36.00% | 41.97% | Period-end Restricted Assets | Item | Period-end Book Value (CNY) | Reason for Restriction | | :--- | :--- | :--- | | Cash and Equivalents | 552,530,448.59 | Deposit | | Fixed Assets | 18,498,673.20 | Borrowing Pledge | | Intangible Assets | 60,055,230.87 | Borrowing Pledge etc | | Other Non-Current Assets - BOT Projects Under Construction | 83,379,023.38 | Pledge | | Total | 714,463,376.04 | -- | Investment Analysis During the reporting period, the company's investment activities significantly increased by 549.28% year-over-year, including major equity investments in Nantong Jiuzhou Environmental (hazardous waste incineration) and Hangzhou Lvjia Water Purifier (waste acid treatment), and a new equity stake in Beijing Zhongguancun Bank, with details provided on the use of proceeds from two non-public offerings, where some early raised funds were reallocated for engineering project payments - Investment amount for the reporting period was 845 million CNY, a significant increase of 549.28% compared to 130 million CNY in the prior year period[57] Significant Equity Investments During the Reporting Period | Investee Company Name | Main Business | Investment Method | Investment Amount (million CNY) | Shareholding Percentage | | :--- | :--- | :--- | :--- | :--- | | Nantong Jiuzhou Environmental Technology Co., Ltd. | Hazardous Waste Incineration and Secure Landfill | Acquisition | 27,040 | 80.00% | | Hangzhou Lvjia Water Purifier Technology Co., Ltd. | Waste Acid Treatment and Water Purifier Sales | Acquisition | 6,540 | 60.00% | | Beijing Zhongguancun Bank Co., Ltd. | Commercial Banking Business | New Establishment | 39,600 | 9.90% | - The company changed the use of 1.548 billion CNY raised in 2013, reallocating 734 million CNY originally for 'green nursery base construction' and 'garden machinery procurement' to payments for 14 engineering projects[65][69][78] Significant Asset and Equity Disposals During the reporting period, the company sold its 60% equity stake in Hangzhou Fuyang Shenneng Solid Waste Environmental Recycling Co., Ltd. to Hangzhou Shenlian Environmental Technology Co., Ltd. for 1.5115 billion CNY, with this disposal negatively impacting the company's net profit attributable to parent by 25.60% Significant Equity Disposal | Equity Sold | Counterparty | Transaction Price (million CNY) | Impact on Listed Company's Net Profit | | :--- | :--- | :--- | :--- | | 60% Equity Stake in Hangzhou Fuyang Shenneng Solid Waste Environmental Recycling Co., Ltd. | Hangzhou Shenlian Environmental Technology Co., Ltd. | 151,150 | Negative 25.60% of total net profit | Analysis of Major Holding and Associate Companies This chapter provides the operating performance and key financial data of the company's major subsidiaries during the reporting period, listing subsidiaries acquired and disposed of through acquisitions, new establishments, and equity transfers, with the disposal of Shenneng Environmental having a significant impact on net profit attributable to parent Major Subsidiary Financial Data (H1 2017) | Company Name | Operating Revenue (CNY) | Operating Profit (CNY) | Net Profit (CNY) | | :--- | :--- | :--- | :--- | | Zhongbang Construction Engineering Co., Ltd. | 60,341,480.32 | 14,865,606.76 | 14,316,591.96 | | Zhongshan Environmental Protection Industry Co., Ltd. | 80,559,414.33 | -29,077,122.50 | -28,337,522.20 | | Shanghai Liyuan Water Treatment Technology Co., Ltd. | 64,557,817.93 | -2,590,882.74 | -3,004,683.09 | | Beijing Miaolianwang Technology Co., Ltd. | 112,643,142.13 | 46,005,457.38 | 45,734,566.44 | | Hangzhou Fuyang Jinyuan Copper Co., Ltd. | 514,542,743.46 | 34,118,835.29 | 26,902,245.14 | - During the reporting period, the company acquired new subsidiaries including Nantong Jiuzhou Environmental and Hangzhou Lvjia Water Purifier, and disposed of Hangzhou Fuyang Shenneng Solid Waste Environmental Recycling Co., Ltd. through equity transfer[90] 2017 Q1-Q3 Operating Performance Forecast The company forecasts a 50% to 80% year-over-year increase in net profit attributable to shareholders for the first three quarters of 2017 (January-September), with a projected net profit range of 776 million CNY to 931 million CNY, primarily driven by the maturing strategic transformation and rapid revenue growth fueled by the expanding PPP business model 2017 Q1-Q3 Performance Forecast | Item | Forecast Data | | :--- | :--- | | Change in Net Profit Attributable to Parent | 50.00% To 80.00% | | Net Profit Attributable to Parent Range | 77.56257 million CNY To 93.07508 million CNY | | Net Profit Attributable to Parent in Prior Year Period (2016) | 51.70838 million CNY | Risks and Countermeasures The company faces primary risks including industry and business model risks, revenue recognition risk, and completed but unsettled inventory risk, with industry risks stemming from local government fiscal conditions impacting municipal project investment and collection, and business model risks encompassing bad debt risk from traditional advance payment models and policy/performance uncertainties of the nascent PPP model; the company has implemented measures like establishing a settlement management department and strengthening assessments to actively promote project settlement and mitigate these risks - Industry and Business Model Risks: - Local government fiscal pressure may affect municipal construction investment and the company's collection progress - Traditional advance payment models lead to significant inventories and accounts receivable, posing bad debt risks - The PPP model is in its nascent stage, facing policy and government transition performance uncertainty risks[93][95][97] - Revenue and Inventory Risks: - Revenue recognition using the percentage-of-completion method creates a time lag with project settlement, potentially leading to revenue adjustments - As of June 30, 2017, the cumulative revenue difference between completed but unsettled projects and cumulative settlement was 8.487 billion CNY - The balance of completed but unsettled inventories (engineering inventories) reached 8.503 billion CNY, posing impairment and collection risks[98][100][102][103] - Countermeasures: The company has established a settlement management department, formulated and implemented settlement management processes, and actively promotes project settlement through methods such as preparing plan tracking tables and monthly reports, completing 2.867 billion CNY in settlements in H1 2017[105] Significant Matters Equity Incentive and Employee Stock Ownership Plans During the reporting period, the company actively promoted multiple employee incentive measures, completing partial exercise of the second phase equity incentive plan and granting reserved options for the third phase equity incentive plan, while also launching the second phase employee stock ownership plan, which completed approximately 1.5 billion CNY in stock purchases, further motivating core employees - Second Phase Equity Incentive Plan: In June 2017, the exercise of the second exercise period for the initial grant of stock options and the first exercise period for the reserved grant was completed, with 115 incentive recipients exercising a total of 3,794,874 options[122][123] - Third Phase Equity Incentive Plan: In March 2017, 1.0745 million reserved stock options were granted to 6 incentive recipients at an exercise price of 16.63 CNY[127] - Second Phase Employee Stock Ownership Plan: As of July 10, 2017, the plan completed stock purchases, accumulating 92,474,622 shares, representing 3.45% of total share capital, with a transaction amount of approximately 1.476 billion CNY and an average transaction price of approximately 15.96 CNY/share[128][129] Significant Contracts and Performance This chapter primarily discloses the company's significant guarantees, noting that during the reporting period, the company mainly provided guarantees for its subsidiaries to support their business development and financing needs, with the actual guarantee balance to subsidiaries reaching 666 million CNY, representing 6.95% of the company's net assets, as of the end of the reporting period Summary of Company's External Guarantees (As of Period-end) | Guarantee Type | Approved Guarantee Limit (million CNY) | Actual Guarantee Balance (million CNY) | | :--- | :--- | :--- | | Guarantees to Subsidiaries | 88,300 | 66,645.25 | | Total | 88,300 | 66,645.25 | - The actual total guarantee amount represents 6.95% of the company's net assets[143] Other Significant Matters During the reporting period, the company had two other significant matters: the sale of a 60% equity stake in subsidiary Shenneng Environmental for 1.5115 billion CNY, and the formal launch of all-area tourism business via board resolution, with plans to undertake related projects already developed by the controlling shareholder - The company sold its 60% equity stake in Shenneng Environmental for a consideration of 1.5115 billion CNY[151] - The company decided to launch all-area tourism business and will undertake existing all-area tourism PPP projects in Fenghuang County and Tengchong City from the industrial group, to extend its industrial layout and leverage business synergies[151] Share Changes and Shareholder Information Share Changes and Shareholding During the reporting period, due to the exercise of the second phase equity incentive plan, the company's total share capital increased from 2.677 billion shares to 2.681 billion shares, with 74,967 households of common shareholders at period-end, and actual controllers He Qiaonv and Tang Kai jointly holding 49.20%, while an employee stock ownership plan collective fund trust appeared among the top ten shareholders with a 3.34% stake - Due to the exercise of the second phase equity incentive plan, the company's total share capital increased by 3,794,874 shares, reaching 2,681,155,280 shares at period-end[156] Top Five Shareholders' Shareholding | Shareholder Name | Shareholder Type | Shareholding Percentage | Number of Shares Held | | :--- | :--- | :--- | :--- | | He Qiaonv | Domestic Individual | 41.54% | 1,113,789,413 | | Tang Kai | Domestic Individual | 7.66% | 205,349,530 | | Zhongtai Chuangzhan (Zhuhai Hengqin) Asset Management Co., Ltd. | Domestic Non-State-Owned Legal Person | 4.50% | 120,600,541 | | China Overseas Trust - Anying No. 19 Oriental Garden Employee Stock Ownership Plan Collective Fund Trust | Domestic Non-State-Owned Legal Person | 3.34% | 89,526,422 | | Shandong International Trust Co., Ltd. - Hengying No. 2 Collective Fund Trust Plan | Domestic Non-State-Owned Legal Person | 2.21% | 59,296,268 | - Actual controllers He Qiaonv and Tang Kai are a married couple, jointly holding 49.20% of shares[164] Corporate Bonds Information Corporate Bond Basic Information and Rating As of the end of the reporting period, the company had three publicly issued corporate bonds, '16 Donglin 01', '16 Donglin 02', and '16 Donglin 03', listed on the Shenzhen Stock Exchange, with a total balance of 2.2 billion CNY; during the period, Shanghai New Century Credit Rating upgraded the company's issuer credit rating and related bond ratings from AA to AA+ with a stable outlook, primarily due to successful strategic transformation, sufficient PPP projects on hand, and guaranteed business growth Basic Information on Outstanding Corporate Bonds | Bond Abbreviation | Bond Code | Maturity Date | Bond Balance (million CNY) | Interest Rate | | :--- | :--- | :--- | :--- | :--- | | 16 Donglin 01 | 112380 | 2021-04-19 | 100,000 | 5.78% | | 16 Donglin 02 | 112426 | 2021-08-10 | 60,000 | 4.70% | | 16 Donglin 03 | 112464 | 2021-10-24 | 60,000 | 4.00% | - On June 20, 2017, Shanghai New Century upgraded the company's long-term issuer credit rating and bond ratings from AA to AA+, with a stable outlook[179][180] - As of the end of the reporting period, the company obtained bank credit lines totaling 9.627 billion CNY, with 3.378 billion CNY utilized and 6.249 billion CNY unused, indicating strong indirect financing capability[187] Financial Report Financial Statements This chapter presents the unaudited consolidated and parent company financial statements for the first half of 2017, including the balance sheet, income statement, cash flow statement, and statement of changes in owners' equity, showing steady asset growth, significant profitability improvement, but a decrease in operating cash flow and a substantial increase in financing cash flow Consolidated Balance Sheet Summary (June 30, 2017) | Item | Period-end Balance (CNY) | Beginning Balance (CNY) | | :--- | :--- | :--- | | Total Assets | 25,886,069,365.25 | 24,010,502,433.20 | | Inventories | 9,319,528,426.80 | 8,782,717,265.10 | | Accounts Receivable | 5,754,568,014.49 | 5,123,746,526.10 | | Total Liabilities | 16,245,951,718.14 | 14,567,817,379.52 | | Short-term Borrowings | 1,943,725,371.00 | 1,236,446,752.51 | | Bonds Payable | 2,735,780,880.36 | 2,736,030,284.62 | | Equity Attributable to Parent Company Owners | 9,584,957,908.50 | 9,190,103,932.36 | Consolidated Income Statement Summary (H1 2017) | Item | Current Period Amount (CNY) | Prior Period Amount (CNY) | | :--- | :--- | :--- | | Total Operating Revenue | 4,984,296,874.06 | 2,918,337,385.86 | | Operating Costs | 3,392,258,073.29 | 2,068,489,638.80 | | Operating Profit | 641,926,079.08 | 374,754,376.97 | | Investment Income | -120,693,955.89 | 28,546,394.77 | | Total Profit | 643,205,246.82 | 414,367,510.32 | | Net Profit Attributable to Parent Company Owners | 467,661,973.81 | 297,113,027.66 | Consolidated Cash Flow Statement Summary (H1 2017) | Item | Current Period Amount (CNY) | Prior Period Amount (CNY) | | :--- | :--- | :--- | | Net Cash Flow from Operating Activities | 222,991,167.67 | 550,588,642.98 | | Net Cash Flow from Investing Activities | -771,966,192.92 | -963,182,869.06 | | Net Cash Flow from Financing Activities | 966,610,370.43 | -22,239,157.31 | | Net Increase in Cash and Cash Equivalents | 417,635,343.58 | -434,716,537.96 | Notes to Financial Statements The notes to financial statements detail the company's general information, basis of financial statement preparation, significant accounting policies and estimates, and provide explanations for major items in the consolidated financial statements, with key areas including revenue recognition policies (especially the percentage-of-completion method for construction contracts), segment information (environmental and environmental protection segments), related party transactions, and share-based payments; during the reporting period, the company reclassified government grants related to daily operations to 'Other Income' in accordance with new regulations - The company's main businesses include landscape engineering, ecological restoration, design, nursery stock sales, and solid and hazardous waste disposal; construction contract revenue is recognized using the percentage-of-completion method, with completion progress determined by the ratio of cumulative actual contract costs incurred to the total estimated contract costs[243][344] - In accordance with new regulations from the Ministry of Finance, the company changed its accounting policy, reclassifying government grants related to daily operating activities from 'Non-Operating Income' to 'Other Income', increasing 'Other Income' by 49,458,281.15 CNY for the current period[356] Segment Information (H1 2017) | Item (CNY) | Environmental Segment | Environmental Protection Segment | Total | | :--- | :--- | :--- | :--- | | Operating Revenue | 4,003,993,764.48 | 980,303,109.58 | 4,984,296,874.06 | | Total Profit | 560,625,942.84 | 82,579,303.98 | 643,205,246.82 | | Total Assets | 24,620,818,873.69 | 1,928,874,890.20 | 25,886,069,365.25 (After Elimination) | | Total Liabilities | 15,757,363,921.18 | 1,152,212,195.60 | 16,245,951,718.14 (After Elimination) |