Description of the event
The National Inspection Group released its 2023 annual report. In the first half of the year, it achieved revenue of 1,005 million yuan, an increase of 13.6% over the previous year; net profit of 28 million yuan, an increase of 71.3% over the previous year; net profit after deducting non-return net profit of 115 million yuan, an increase of 1813.4% over the previous year. Performance was in line with expectations. Among them, Q2's quarterly revenue was 536 million yuan, up 12.7% year on year; net profit attributable to mother was 52 million yuan, up 17.6% year on year; net profit after deducting non-return net profit of 44 million yuan, up 26.5% year on year.
Incident comments
The inspection business is developing well, and the profitability of engineering inspection has improved markedly. 2023H1's revenue continued to grow steadily, and profit increased rapidly year over year. By business segment: 1) Inspection revenue was 729 million yuan, up 15.0% year on year, and 19.3% year on year after excluding medical testing. Among them, engineering inspection/material inspection/environmental inspection/food and agricultural inspection increased by 21.0%/14.2%/13.1%/56.4%, accounting for 49.2%/24.9%/19.6%/6.4%, respectively, and gross margin of +4.47pct/+0.21pct/-3.02pct/-3.60 pct. The profitability of the environment and agriculture sector was dragged down by loss-making subsidiaries (Guojian Jingcheng (environment), Anhui Tuowei (food farmers), and Liaoning Fengtian (food farmers)); the traditional strong sector, engineering inspection revenue growth was impressive, and profitability was continuously optimized, driving the overall gross margin of the inspection and inspection business to increase by 1.22 pct. 2) The revenue of testing instruments and intelligent manufacturing was 122 million yuan, an increase of 14.94% over the previous year. Downstream demand picked up, and contracts exceeding 100 million yuan were signed with large steel and cement companies in the first half of the year. 3) Certification service revenue was 48 million yuan, up 17.48% year on year, gross profit increased 21.03% year on year, and profitability increased. 4) Measurement and calibration revenue was 17 million yuan, an increase of 81.79% over the previous year. At the end of April, the acquisition of 70% of Anhui Huafang's shares was completed, and sector capacity increased significantly. 5) Research and technical services revenue was 86 million yuan, a year-on-year decrease of 5.19%, and a year-on-year increase of 11.87% in gross profit.
Sales and interest expenses increased slightly during the expansion period, and the net interest rate for the first half of the year increased by 0.2 pct over the same period last year. Market development and joint restructuring led to an increase in the absolute value of personnel expenses and service expenses, and an increase in interest-bearing debt led to an increase in financial expenses. The sales/management/development/financial expense ratio in the first half of the year changed 0.86pct/-0.49pct/0.06pct/0.19pct, driving the overall period cost rate to increase slightly from 36.0% of 2022 H1 to 36.6%. The gross profit margin for the first half of the year was 39.6%, an increase of 1.3 pct over the previous year. It is speculated that it is mainly due to the increase in the proportion of water conservancy projects with high gross margins and inventory construction inspections in engineering inspections. Net interest rate increased by 0.2 pct to 2.7% year-on-year in the first half of the year.
Operating cash flow was basically the same as in the same period last year. The revenue ratio improved, and the balance ratio increased. 2023H1 Net cash flow from operating activities was 27 million yuan, which is basically the same as the same period last year; the payout ratio increased by 5.7% to 103% year-on-year, an improvement is significant; interest-bearing debt has continued to rise in the past 3 years, driving the balance ratio to an increase of 4.1 pct to 49.3% compared to the beginning of the year.
It is proposed to publicly issue 800 million yuan of convertible bonds to supplement capital and optimize the structure. At the end of June 2022, the company announced that it plans to issue 800 million yuan of convertible bonds for Hunan Huake Laboratory, Hunan Company, Hebei Xiong'an Laboratory, carbon emission management platform construction and some acquisition projects to supplement capital to help future development and optimize the company's financial structure; it is still in the process of issuing applications.
Profit forecast and valuation: The company announced target revenue of 2.94 billion yuan for 2023, up 21.1% year on year; total profit of 400 million yuan, up 18.5% year on year. We expect the company's “cross-regional+cross-sector” mergers and acquisitions to continue to advance in the second half of the year, a recovery in demand in the real estate industry, and an improvement in subsidiary profits. The company's revenue for 2023-2025 is estimated to be 29.4/35.7/4.24 billion yuan, a year-on-year increase of 21.3%/21.3%/18.7%; return net profit of 3.19/396/484 million yuan, a year-on-year increase of 26.1%/24.2%/22.3%, corresponding to a PE valuation of 25.8x/20.7x/17.0x. Maintain a “buy” rating.
Risk warning
1. Reputation and brand risk of being affected by adverse events; 2. M&A decision risk and post-merger integration risk.