The testing leader of building materials has shown excellent growth in recent years. The company, formerly known as Changzhou Institute of Construction Science, focuses on building materials testing (43% of revenue in 2021), and develops two collaborative sectors of special engineering and new building materials (25% in 2021). At the same time, it actively enters into the field of environmental protection inspection and testing (revenue accounts for 7% in 2021). In recent years, the company has continued to expand and expand its business areas, and the scale of operation has grown rapidly. The compound growth rates of revenue and performance in 2019-2021 are 19% and 42% respectively, and the gross profit margin and ROE of the main business are better than those of the same industry. The net inflow of operating cash continues to improve and the profit quality is excellent. As of the end of 2022Q3, the company has 1.8 billion cash on hand, abundant liquidity, interest-bearing debt ratio of only 0.69%, and large table space, which is expected to strongly support the implementation of expansion strategies such as company acquisitions and the establishment of regional companies.
The demand space of the industry is broad, and the leader is ready to start. In 2021, the size of China's inspection and testing market is about 409 billion yuan, and the CAGR has reached 14% in the past 8 years, with steady demand growth, of which building materials is the largest subdivision (the total proportion is about 26%). Subject to stricter engineering quality standards and "competitive quality" of real estate
Driven by the trend, the permeability of third-party engineering testing continues to improve, while the existing dilapidated buildings investigation and safety monitoring are expected to provide a broad stock space for the industry, and the industry has sufficient power for long-term growth. At present, the overall industry pattern of inspection and testing in China is scattered (the CR4 of the whole industry is only 2.6%), and has strong regional operation characteristics (about 73% of the institutions only provide testing services for the province). Some head companies are speeding up merger and expansion and regional layout, and the market share continues to increase, which is expected to drive industry consolidation and enhance the overall concentration.
Integrated service, private mechanism and brand credibility build core advantages. 1) Integration advantage: the company has rich qualifications, wide coverage of testing parameters and outstanding comprehensive service capability. at the same time, it develops special projects and new material plates based on the main testing industry. the formation of "inspection and detection problems"-"special projects and new materials to solve problems" one-stop service chain, the advantage of business integration is significant. 2) advantages of private mechanism: as a high-quality private enterprise, the company has a large space for independent decision-making, the incentive system is fully market-oriented, and the per capita income and profit-making indicators are obviously better than those of state-owned enterprises in the same industry, which is expected to promote the implementation of expansion strategy more efficiently. 3) Brand credibility: the company continues to attach importance to the maintenance of brand reputation, excellent reputation in the industry, in housing construction, infrastructure and other sub-areas have more benchmarking projects landing, has formed a strong credibility advantage in the professional field.
Region and category expansion, wisdom testing open the space for medium-and long-term growth. 1) remote expansion: in recent years, the company has made steady progress in its expansion outside the province, with an income of 18% of CAGR from 2018 to 2021. According to the prospectus plan, the company plans to invest 134 million yuan to set up regional laboratories in five provinces, and plans to achieve national layout within 3 years, and the development process outside the province is expected to be significantly accelerated. 2) Parameter expansion, domain expansion:
The company has a complete R & D system and strong technical strength, and it is expected to continue to expand inspection parameters and open up testing areas other than construction and environmental protection, so as to strengthen the driving force for medium-and long-term growth. 3) Intelligence testing:
The company continues to increase business digital investment, internal enabling the main business to improve testing efficiency, external landing bridge health, dilapidated building monitoring and other multi-field intelligent monitoring system platform products, is expected to create new business growth points.
Investment suggestion: we predict that the company's homing net profit from 2022 to 2024 is RMB 1.9 / 290 million respectively, an increase of 15% over the same period last year. The corresponding EPS is 1.03 pm 1.29max 1.62 RMB respectively.
The current share price is trading at 25-20-16 times the corresponding PE, covering a "buy" rating for the first time.
Risk hint: test the risk of credibility decline, business development in other places is not as good as expected risk.