The company is the leading overall solution provider of motor vehicle testing in China, and has formed a dual main business of testing system and testing operation. In the first half of 2023, thanks to the smooth progress of testing operations and the effectiveness of fee control and cost reduction, the company's performance showed signs of picking up. At the same time, considering the imminent introduction of testing standards for new energy vehicles, the company is expected to be the first to benefit as a leading manufacturer, and its performance is expected to usher in explosive growth. We are optimistic about the long-term development prospect of the company. It is expected that the company will achieve a net profit of 59 million / 128 million / 234 million yuan in 2023-24-25, corresponding to the forecast of 0.26max / 0.56 PE in 2023-24-25, and the current price corresponding to 64.1 in 2023-24-25. We give the company 2024 35xPE valuation level, corresponding to the target market value of 4.46 billion yuan, corresponding to the target price of 20 yuan, the first coverage, given a "buy" rating.

Company profile: China's leading overall solution provider for motor vehicle testing. The company has been deeply ploughing the motor vehicle testing system business for many years, and has successfully extended to the downstream field through acquisitions and mergers and other ways to expand vehicle testing and operation services since 2018. Under the influence of the new vehicle testing policies in 2020 and 2022, the company's performance has been under pressure since 2021. In the first half of 2023, thanks to the smooth expansion of the company in the field of testing and operation and the effectiveness of fee control and cost reduction, the company's performance showed signs of recovery, with operating income of 257 million yuan / year-on-year + 8.4% and net profit of 28 million yuan / year-on-year + 31.0%.

Industry analysis: motor vehicle testing market space is huge, new energy vehicle "three electricity" testing is just around the corner. Policy side: on June 30, 2023, the Institute of Traffic Management Science of the Ministry of Public Security, together with a number of enterprises in the industry, drafted the draft of the rules for testing the Operation Safety performance of New Energy vehicles, focusing on the testing of batteries, motors and electronic control systems of new energy vehicles. Market end: according to the statistics of the Ministry of Public Security and the World Bank, the number of cars in China reached 319 million in 2022, ranking first in the world, but the number of cars with 1000 people in China is only 226, which is still at a relatively low level. According to the forecast of the prospective Industrial Research Institute, the market size of China's automobile testing industry is expected to reach about 93.2 billion yuan in 2026, and the market size of 2022-2026CAGR is about 9.5%. Technical side: mandatory testing is the most important application market of domestic motor vehicle inspection system, including security inspection, environmental inspection and comprehensive inspection.

We expect that in the future, the inspection of new energy vehicles will retain the same routine safety testing items as traditional fuel vehicles, and the inspection of key components such as "three electricity" will be added, which is expected to effectively boost the investment in testing equipment for new energy vehicles. We estimate that the investment in domestic new energy vehicle testing line will exceed 5 billion yuan in 2024.

Company analysis: domestic motor vehicle testing system leader, expand the testing operation of the second growth curve. 1) testing system business: the company is a leading supplier of motor vehicle testing systems in China, with the overall delivery capacity of software and hardware, and participated in the leading formulation or revision of a number of industry standards. At present, the company serves more than 5,000 customers, accounting for more than 3% of the market share. at the same time, the company has started the research and development of new energy vehicle testing equipment and technology, and is expected to be the first to benefit from the landing of new energy vehicle testing standards. 2) testing operation business: the company extends to the downstream industrial chain and successfully expands the operation business of motor vehicle testing stations. By the end of 2022, the number of testing stations directly operated by the company is 41, and according to the summary of investor research disclosed by the company on July 20, 2023, the company will acquire 11 new motor vehicle testing stations in 2023 to establish brand effect through standardized and digital management to add new momentum to the company's performance growth.

Risk factors: the risk of macroeconomic changes; the risk of a change in the state's mandatory testing policy for motor vehicles in use; the risk that the introduction of new energy vehicle testing standards is not as expected; the risk of uncertainty in investment mergers and acquisitions; the risk of intensified market competition; the risk that the development of new business is not as expected.

Investment suggestion: the company is the leading overall solution provider of motor vehicle testing in China, and has formed a dual main business of testing system and testing operation. Considering the imminent introduction of testing standards for new energy vehicles, the company, as a leading manufacturer, is expected to be the first to benefit. We expect the company to achieve a net profit of 59 million / 128 million / 234 million yuan in 2023-24-25, corresponding to the forecast of 0.260.56 EPS 1.02 yuan, and the current price corresponding to the annual PE of 64.1 pounds in 2023-24-25, which is 16.3 times. We select China Test, China Automotive Research and Duolun Technology as comparable companies, and we focus on the 2024 valuation forecast of the company and comparable companies, considering that the company's performance is expected to see explosive growth in 2024. According to the PE valuation method, the average PE valuation of comparable companies in 2024 is about 28 times (Wind consensus expectations). In addition, reviewing the company's historical valuation, before the implementation of the new car inspection policy in 2020, the company's valuation center was above 40xPE. Take PE valuation and historical valuation center which is lower, and taking into account that the company, as a leading manufacturer, has higher channels and product barriers, obvious performance flexibility, can enjoy a certain valuation premium, we give the company 2024 35xPE valuation level, corresponding to the target market value of 4.46 billion yuan, corresponding to the target price of 20 yuan, the first coverage, given the "buy" rating.