The company released its three-quarter report for 2023, achieving operating income of 1.6 billion yuan, an increase of 7.54%, net profit of 74 million yuan, a decrease of 4.66%, net profit of 52 million yuan, a decrease of 6.88%, and net cash flow from operating activities of 24 million yuan. The decline in revenue and profit was mainly affected by the environmental food and agriculture sector, which accounted for a relatively high share of government business. Guided by the “double cross” and “four complete” strategies, the company's future key business, such as stock house testing, double carbon, process industry intelligent laboratories, and soil surveys, will all have growth elasticity and maintain a “buy” rating.
Matters: The company released its three-quarter report for 2023, achieving operating income of 1.6 billion yuan, an increase of 7.54%, net profit of 74 million yuan, a decrease of 4.66%, net profit of 52 million yuan, a decrease of 6.88%, and net cash flow from operating activities of 24 million yuan. The corresponding revenue for the third quarter was 595 million yuan, a decrease of 1.39%, net profit of 46 million yuan, a decrease of 25.07%, a decrease of 25.07%, a decrease of 33.22% from non-return net profit of 36 million yuan, a decrease of 33.22%, and net cash flow from operating activities of 51 million yuan.
The environmental food and agriculture sector is dragging down revenue growth, and other businesses are expected to remain steady. The company's revenue declined slightly in the third quarter, mainly affected by the environmental, food, and agriculture sector. The environmental food and agriculture sector accounts for a relatively high share of government business, while fiscal tightening has led to a decline in revenue due to factors such as reduced government procurement, lower prices, and delays in settlement times. The construction, building materials, and intelligent manufacturing sectors are all expected to maintain steady growth.
The decline in gross margin was mainly due to the expansion of losses in the environmental food and agriculture business, and the reduction in equity incentive expenses led to a marked decline in the management expense ratio. The company's gross margin for the third quarter was 38.4%, down 5.84pcts year on year, mainly due to declining gross margin and increased losses in the environmental food and agriculture sector. We expect other business gross margins to be more stable. Looking at the expense ratio, the company's sales/management/R&D/finance expense ratio for the third quarter was 5.4/11.1/9.1/ 2.0%, 0.4/-3.9/0.4/1.0pct, respectively. The management expense ratio dropped sharply and major equity incentive expenses were reduced. The year-on-year increase in financial expenses was mainly due to an increase in bank loans due to an increase in accounts receivable.
Cash flow improved year over year. The net cash flow from the company's operating activities in the third quarter was 50.57 million yuan, up 45.5% year on year, revenue ratio was 91.77%, up 2.36 pcts year on year. Mainly due to the external environment and real estate market regulation policies in the same period last year, customer payment cycles became longer, and the company continued to increase payment collection efforts this year.
Risk factors: risk of large fluctuations in macroeconomic growth; risk of increased industry competition; risk of acquisition progress and integration capabilities falling short of expectations; risk of policy progress falling short of expectations; uncertainty about the progress of convertible bonds.
Profit forecasting, valuation and ratings: The company's internal and external extension continues to improve testing capabilities and move towards becoming a leader in comprehensive inspection and testing. In the future, the company's focus on businesses such as double carbon, process industry intelligent laboratories, soil surveys, and stock house structure certification will all have growth elasticity. We expect that in the future, revenue scale will continue to grow rapidly, and market share will continue to rise. We adjusted the company's 2023-2025 net profit forecast to 2.81/3.5/435 million yuan (original forecast was 3.16/3.85/457 million yuan), corresponding to the EPS forecast of 0.35/0.44/0.54 yuan. Referring to the company's historical valuation center (valuation center for the past 5 years was 35x), considering that demand is still in a weak recovery stage, based on the principle of prudence, we gave 30 times PE for 2024, corresponding to the target price of 13 yuan, maintaining the “buy” rating.