Description of the event

Radio and Television Metering released its 2023 three-quarter report. Q1-Q3 achieved revenue of 1,963 billion yuan, an increase of 18.3% over the previous year; net profit of 133 million yuan, an increase of 76.8% over the previous year; and net profit after deducting non-return mother of 113 million yuan, an increase of 201% over the previous year.

Among them, 2023Q3 achieved revenue of 732 million yuan, an increase of 10.2% over the previous year; net profit of 73 million yuan, an increase of 29.6% over the previous year; net profit after deducting non-return mother was 69 million yuan, an increase of 74.1% over the previous year.

Incident comments

2023Q3's revenue increased 10.2% year over year, and the growth rate rebounded slightly from the second quarter. The year-on-year growth rate of the company's revenue has clearly slowed since Q2 of this year, which may be due to: 1) EHS evaluation business estimates have dragged down. Referring to overall revenue of 48 million yuan in the first half of the year, a year-on-year decrease of 38.3%, is related to the adjustment period of subsidiary Zhongan Guangyuan after the performance commitment period and the high financial pressure on government customers; 2) Environmental Protection & Food Testing: The proportion of government customers in this business is high, and the company's focus on profit reduction and loss reduction may have been abandoned. Some orders with poor prices may have been abandoned. Environmental & Food Testing H1 revenue growth was only 4.5%/2.2%, respectively; 3) The company's volume Special industries account for a relatively high share of calibration/reliability test/electromagnetic compatibility revenue, and it is speculated that the Q3 order confirmation revenue cycle may be extended.

The 2023Q3 net interest rate increased 1.9pct to 10.1% year on year, and profitability rebounded. Although the company's revenue growth rate was not high in the third quarter, profitability improved markedly. Net interest rate reached 10.1%, up 1.9pct year on year; gross profit margin was 43.5%, up 3.5pct year on year; period expense ratio decreased slightly; credit impairment losses of 26 million yuan, a significant increase from 0.08 million yuan in the same period last year, may be related to the slowdown in repayments from government customers; the year-on-year growth rate of net profit in Q3 was significantly higher than the revenue base in Q3 last year. The improvement in the company's profitability is estimated to have benefited from the appropriate contraction of loss-making business sectors such as environmental testing/food testing, and the initial results of cost control. Unlike 2022, the company's overall revenue and profit performance for each quarter was relatively stable this year (regardless of the Q1 off-season factor).

Improved cash flow. Q3 The company's net cash flow from operating activities was 159 million yuan, up 33.7% year on year. Total net cash flow for the first three quarters was 285 million yuan, up 44.2% year on year. The improvement in cash flow was significant.

A draft equity incentive was introduced. In mid-October, the company announced the 2023 stock options and restricted stock incentive plan (draft). It plans to grant stock options and restricted stocks to 623 employees, no more than 8.625 million shares, covering the company's 6 deputy general managers/1 financial director/other management personnel and core executives. The assessment indicators include net profit deducted from non-return to the parent, return on net assets, cash operating index, and R&D investment growth rate. The introduction of the draft equity incentive plan is expected to better motivate core employees and improve operating efficiency.

The laboratory has sufficient production capacity, and it is expected that the utilization rate will be restored. At the end of 2022, the original value of the company's testing equipment (including darkrooms and shielded rooms) was about 2.23 billion yuan, an increase of 18.2% over the previous year. The proposed technical improvement expenditure after adjustments in 2023 was 414 million yuan, an increase of 36.8% over the previous year.

The company has abundant production capacity, with special industries, automotive testing, and integrated circuit testing as areas of strength, while environmental testing, food testing, and EHS evaluation services are still weak sectors of the company. We expect the promotion of refined management to improve profitability.

Profit forecast and valuation: In 2023-2025, the company's revenue is expected to be 3.08 billion yuan/3.69 billion yuan/4.4 billion yuan, a year-on-year increase of 18.2%/19.9%/19.2%; net profit of 283 million yuan/374 million yuan/491 million yuan, a year-on-year increase of 53.6%/32.5%/31.2%, corresponding to PE valuation of 28.7x/21.7x/16.5x.

Risk warning

1. There is a risk that revenue growth and gross margin fall short of expectations due to increased competition in environmental testing and food testing; 2. Net interest rate increase is less than expected risk as laboratory capacity utilization falls short of expectations.