Incident: The company released its annual report for '22 & quarterly report for '23. It achieved revenue of 815 million yuan for the full year of 2022, an increase of 16.22% over the previous year; it achieved net profit of 114 million yuan, an increase of 35.22% over the previous year. 2023Q1 achieved revenue of 177 million yuan, an increase of 21.67% over the previous year; it achieved net profit of 9.85 million yuan to the mother, a year-on-year decrease of 33.81%.

The testing business maintained relatively rapid growth and gross margin rebounded in '22. The increase in cost ratios during the period was mainly affected by a sharp increase in R&D expenses. The company's testing business continued to grow rapidly in 2022. Revenue increased 23.7% year over year to 386 million, and gross margin increased 1.79 pct over the same period last year, driving the company's overall gross margin to increase 0.94 pct to 46.45% year on year.

Revenue from testing and analytical instruments, corrosion protection engineering and products, standard substances/standard samples, and capability verification businesses was 237 million, 48.1 million, 78.73 million, and 26.45 million respectively, up 9.4%, -6.5%, 23.2%, and 4.7%, respectively, from the previous year. Looking at the cost side, the company's expenses rate in 2022 was 38.69%, an increase of 2.67 pct over the same period last year. The main reason was that R&D expenses increased 71% year-on-year to 101 million, and the R&D expense ratio increased to 12.43%.

Actively promote regional layout to consolidate the advantages of testing business and continue to develop high-end instruments. In the testing sector, the company continuously optimizes the regional layout. In 2022, the Beijing Yongfeng 3A laboratory was relocated and remodeled, Chengdu NAC production capacity was fully released, the construction of the Jiangsu Knack base was basically completed, the Qingdao Pingdu Testing Laboratory obtained CMA qualification, and Shenyang Nac was incorporated to build a platform for subsequent development. In the instrument sector, on the one hand, the company's traditional advantage products continue to grow. In 2022, sales contracts for ICP spectrometers and gas analyzers increased dramatically year-on-year. Direct reading spectrometers sold more than 400 units and gas analyzers sold more than 300 units; on the other hand, high-end new products such as FE-1050 series field emission scanning electron microscopes and PlasmaS 400 inductively coupled plasma mass spectrometers were released and brought to market, and subsequent sales are worth looking forward to.

The 23Q1 fee increase dragged down short-term results, and the impact was limited throughout the year. 2023Q1's revenue increased 21.67 percent year on year to 177 million. In line with expectations, Gimu's net profit fell 33.81% mainly due to the increase in management and R&D expenses (up 90.5% and 59.1%, respectively). We determined that the increase in management expenses was mainly due to the increase in equity incentives and amortization costs and the push for Jiangsu Nac to start production and operation. The increase in R&D expenses was mainly due to NAC Microbeam's continued investment in instrument research and development. The company's historical Q1 profit accounted for a low percentage of the whole year, and short-term performance pressure is expected to have limited impact on the whole year.

We adjusted the 2023-2024 revenue and gross margin assumptions and introduced the 2025 earnings forecast. We expect earnings per share for 23-25 to be 0.52/0.72/0.95 yuan (previously 2023-2024 were 0.55 and 0.72 yuan). Referring to the average valuation of comparable companies, we gave 2023 36 times PE, with a target price of 18.72 yuan, maintaining the “increase in holdings” rating.

Risk warning

High temperature alloy testing demand fell short of expectations, production capacity release fell short of expectations, and instrument product development progress fell short of expectations