occurrences

On October 26, Western Test released its report for the third quarter of 2023. In 2023Q1-Q3, the company achieved revenue of 186 million yuan, an increase of 6% over the previous year, and realized net profit of 16 million yuan, a decrease of 135% over the previous year.

reviews

1. The decline in gross margin is compounded by large investment in laboratory construction, and performance is under pressure in the short term. In 2023Q1-Q3, the company achieved revenue of 186 million yuan, an increase of 6% over the previous year. In 2023Q1-Q3, the company achieved a comprehensive gross profit margin of 40.46%, a year-on-year decrease of 13pcts, mainly due to a large decline in gross margin in some businesses. 2023Q1-Q3, the company's period expense ratio was 50.93%, up 16.88pcts year on year. Among them, sales, management, R&D and finance expense rates were 17.20%, 25.18%, 8.11% and 0.45% respectively, sales expenses increased 4.19 pcts year over year, management expenses increased 10.7 pcts year on year, R&D expenses increased 1.80 pcts year on year, and financial expenses increased 0.2 pcts year on year. Among them, management expenses increased 85% year over year, mainly due to the construction of new test sites in Beijing, Xi'an, and Chengdu and the increase in personnel. In 2023Q1-Q3, the company achieved net profit of 16 million yuan, a year-on-year decrease of 135%, and short-term performance under pressure.

2. It is still in a period of rapid development and is optimistic about long-term development. The company is currently in a period of rapid development. The company continues to establish subsidiaries in Xi'an, Beijing, Chengdu and other places, and continues to increase investment in advantageous business areas. In 2023Q1-Q3, the company's fixed asset balance was 183 million yuan, up 38% from the beginning of the year; the balance of projects under construction was 156 million yuan, up 399% from the beginning of the year, indicating that the company is expanding production at an accelerated pace. At the same time, the company will use its own capital of 122 million yuan to make additional investments in the fund-raising investment project “Xi'an Headquarters Testing Base Construction Project”. New models of military equipment require extensive testing in the process from R&D and prototyping to mass production, which will effectively drive the growth of related third-party inspection and testing services. The results of the company's fund-raising project will significantly improve the testing capabilities of the company's two major experimental bases in Xi'an and Chengdu, further meet the needs of customers in the field of testing, and enhance the company's competitiveness. We believe that with the gradual commencement of the company's fund-raising projects and the effects of scale, the company's performance is expected to reach an inflection point.

3. Publish an equity incentive plan to demonstrate the company's confidence in development. The company announced an equity incentive plan on July 5, 2023. It plans to grant no more than 2,622,500 restricted shares to 118 incentive recipients at a price of 19.48 yuan/share. Judging from the performance assessment target, based on 2022 operating income, the company's revenue growth rates from 2023 to 2025 are not less than 25%, 75%, and 162%, respectively. The setting of the company's assessment goals shows the company's confidence in its competitiveness and business development prospects.

4. Profit forecast and investment rating: We expect the company's net profit from 2023-2025 to be 0.68, 0.94, and 141 million yuan respectively, up 5%, 39%, and 50% year-on-year, corresponding to the current stock price PE of 40, 29, and 19 times, respectively, giving it an “increase in holdings” rating.

Risk warning:

Military orders fell short of expectations; industry competition intensified; market expansion fell short of expectations, etc.