Introduction to this report:
The company's mid-year report on 23 exceeded expectations. The repair speed of the engineering inspection sector in the first half of the year was better than expected, achieving a sharp increase in volume and profit. The overall increase in profit was better than the increase in revenue, reflecting the company's good endogenous management capabilities.
Key points of investment:
Maintain the “increase in holdings” rating. In the first half of the year, the company achieved revenue of 1,005 billion yuan, +13.63% year-on-year, and net profit of 28.11 million yuan, a year-on-year increase of 71.30%, exceeding expectations. Maintain an EPS of $0.39/0.46/0.56 in 23-25, and maintain a target price of 13.86 yuan.
Increasing profits is better than increasing revenue, reflecting the company's good endogenous management capabilities. The company's overall revenue increased by 14% in the first half of the year, with total profit/net profit growing at 17% and 23% year-on-year, respectively. In the past, during the company's rapid mergers and acquisitions stage, reports usually showed that profit growth was weaker than revenue growth, but after mergers and acquisitions temporarily stagnated in '22, the company rearranged the structure and operating efficiency of various subsidiaries. The increase in profit began to be superior to the increase in revenue, which also reflected the company's solid management skills.
The repair speed of the engineering inspection sector was better than expected, and the volume and profit increased. The revenue of the engineering inspection sector in the first half of the year was 359 million yuan, an increase of 12% over the previous year, which was better than expected. Demand for new real estate starts is still weak in engineering inspections, but demand for infrastructure has performed well. 23H1 is +30% of the total number of new contracts signed for the entire project inspection. The single volume of infrastructure projects is larger, and the requirements for comprehensive qualifications are higher. Companies have a stronger advantage in getting orders than small enterprises. In terms of profit, the gross profit margin of engineering inspection was 39.48%, +4.47 pct over the previous year, which also reflects the optimization of the company's engineering inspection structure.
Material testing acts as a stabilizing valve, and environmental/agricultural settlement is concentrated in Q4. 1) 23H1 achieved material inspection revenue of 182 million yuan, +14% over the same period. Among them, we expect traditional building materials inspection to maintain single-digit growth, but the growth rate of new materials is 20-30%; 2) The environmental agriculture sector, China Inspection, Jingcheng, Anhui Tuowei, and Fengtian, Liaoning, etc., are mainly government customers, and settlement is cyclical. Generally, it is settled at the end of the year, and environmental/food inspection profits may be concentrated in Q4.
Risk warning: The implementation of infrastructure projects fell short of expectations, and repayments from government customers fell short of expectations.