Items:

The company announced its third-quarter results on the evening of October 24. Revenue in the first three quarters was about 505 million yuan, up 14.05% from the same period last year; the net profit belonging to shareholders of listed companies was about 18.02 million yuan, down 29.64% from the same period last year.

Comments:

Government subsidies affect performance, and the deduction is close to the level for the whole of last year. 1) income level: in the case of poor overall prosperity in the environmental monitoring industry, 23Q1-Q3 's operating income increased by 14.05% over the same period last year, still achieving steady growth. 2) at the gross margin level: 23Q1-Q3 's gross profit margin is 48.44%, which is only lower than that of the same period last year by 1.47pct, showing great resilience. 3) profit level: the decline in the company's return net profit in the first three quarters is mainly due to a sharp decline in government subsidies included in the current income (as high as 34.6903 million yuan in the same period last year, compared with 5.4446 million yuan this year). On the other hand, the non-return net profit has successfully reversed the loss to 9.4371 million yuan from-9.7536 million yuan in the same period last year, which is close to the level of 10.3828 million yuan in 2022, reflecting the improvement of the company's profit quality.

The logic of reducing fees and increasing efficiency continues to deduce. In the comments of the mid-term report and the first quarterly report in 2023, we judged that the reduction in expense rate would be one of the important reasons for the company to release profits, which continued to be verified in the three quarterly reports.

23Q1-Q3 's sales / management / R & D expense rates were 23.59%, 6.18% and 23.35%, respectively, compared with the same period in 2022-4.71/+0.15/+0.17pct. The sharp decline in sales expenses is mainly due to the introduction of LTC system construction, the optimization of existing marketing systems at all levels, the creation of systematic marketing capacity, the promotion of key customer system signing ability, and the continuous improvement of efficiency.

With the strong support of the policy, the business of laboratory analytical instruments can be expected in the future. Since June 2023, the state has significantly increased its support for vocational education. It has successively issued the "Action Plan for the Enhancement of the Integration of Industry and Education in Vocational Education (2023, 2025)" and the "Circular on key tasks of accelerating the Construction and Reform of the Modern Vocational Education system". The above document emphasizes the construction of training bases and the integration of industry and education in the high-end instrument industry. We believe that the instruments and equipment of vocational colleges and application-oriented undergraduates are mainly used in teaching demonstration and training (985Universe 211 focuses on high-end scientific research), which is more in line with the development level of domestic instruments and equipment at the present stage, and coupled with policy support such as medium-and long-term loans. Domestic instrument manufacturers are expected to significantly benefit from the instrument market volume caused by this policy.

Investment advice: maintain the "push" rating, with a target price of 25.97 yuan in 2024. Due to the poor prosperity of the environmental monitoring equipment industry, we have lowered our profit forecast for the company: it is estimated that the return net profit of the company from 2023 to 2025 is 71 million yuan, 126 million yuan and 171 million yuan respectively (the previous value is 0.99,1.45 and 216 million yuan), corresponding to 33 times, 18 times and 14 times of PE respectively. Using the segment valuation method, the company's business is divided into traditional environmental monitoring instruments and high-end scientific instruments. In the environmental monitoring instrument section, we select the company's main competitors, Juguang Technology, Xuedilong and Hexin Instruments as comparable companies, giving the 2024 target PE 22 times; in the high-end scientific instrument sector, we select Dingyang Technology and Puyuan Jingdian as comparable companies to give the 2024 target PE 30 times. Under the assumption that the proportion of net profit of each sector is the same as gross profit, the company is given a target price of 25.97 yuan in 2024.

Risk hints: domestic substitution is less than expected, risk of R & D failure, risk of industrialization failure, intensified competition in the industry, less than expected policy promotion, and greater dependence on government subsidies and tax incentives.