Professional third-party testing and certification agency with leading integrated inspection and certification capabilities: The company is a national third-party certification, inspection and testing comprehensive service organization for vehicles and mechanical equipment. Its main business is inspection and testing services for complete automobiles, military equipment, construction machinery, special equipment, civil aviation ground equipment, parts, etc., as well as certification services such as product certification, system certification and service certification. It is one of the few professional third-party inspection and certification agencies with integrated inspection, testing and certification capabilities in the field of vehicle inspection in China. It has high brand credibility and market recognition in the field of vehicle inspection.

The testing and certification industry is stable and far-reaching, and the prospects for local replacement are promising: with the development of the global testing industry in recent years, the development trend of the testing industry in various countries is generally consistent. That is, the government or industry association manages testing institutions through market entry rules such as assessment and accreditation, the testing business is gradually being marketed, and the level of testing technology and service quality are constantly improving. Emerging market countries such as China are represented by China due to globalization and rapid growth in international trade, the market size of the testing industry continues to expand, local comprehensive testing institutions are growing rapidly, and their comprehensive competitiveness is gradually increasing. According to data released by the State Administration of Market Regulation and the China Business Industry Research Institute, China's inspection and testing market increased by 164.3 billion yuan from 2017 to 2022, with an average compound annual growth rate of 10.18%. Among them, the inspection and testing market reached 427.6 billion yuan in 2022, an increase of 18.6 billion yuan over 2021, an increase of 4.55% over the previous year, and continued to maintain a strong growth trend.

Inspection and certification capabilities are continuously improved, and the one-stop platform accelerates growth: the company has advantages such as brand credibility advantages, one-stop service advantages for testing and certification, advantages in technological innovation and standard research, and stable customer resources. From 2020 to 2022, the overall gross profit of the company's main business showed an upward trend, mainly due to the continuous improvement of the company's testing and certification capabilities and the improvement of the comprehensive strength of the testing and certification business. From 2020 to January to June 2023, the company's consolidated gross margin was 44.79%, 44.67%, 42.72% and 49.10% respectively. Overall, the comprehensive gross margin remained stable. The company always adheres to the technological innovation strategy, continues to increase investment in testing and certification technology research and development, and continuously consolidates and enhances the company's core competitiveness.

The “building-buy-back” model implements fund-raising projects to make up for the shortcomings in the company's new energy and passenger vehicle testing capabilities: In order to speed up project construction and seize the market window, the current fund-raising project uses a “proxy building-buy-back model”. The fund-raising project focuses on passenger cars to balance other vehicles and equipment, and completes the construction of a new energy power supply and component test workshop, vehicle and engine emission test workshop, electromagnetic compatibility test workshop, vehicle crash test workshop, power station and auxiliary workshop, energy supply station, rain and structural component test room, etc. Apply for the “National New Energy Vehicle Quality Supervision and Inspection Center”, Use NEV testing as an opportunity to expand the passenger car testing market and further enhance the company's profitability.

Profit forecast: We expect the company's revenue for 2023-2025 to be 733/8.44/992 million yuan, with corresponding growth rates of 14.86%/15.17%/17.55%, respectively; net profit of 1.41/1.61/166 billion yuan, growth rate of 19.96%/14.52%/15.18%, respectively; in terms of diluted share capital after issuance, the corresponding EPS is 0.62/0.71/0.82 yuan, respectively.

Enterprise valuation: As of November 1, 2023, the industry's latest price-earnings ratio was 30.52 times, and the static average price-earnings ratios for the past month, three months, six months, and year were 30.74, 32.58, 33.69, and 32.

61 times. The valuation analysis of the company is carried out using a comprehensive method of relative valuation and absolute valuation. The relative valuation method estimates the reasonable market value of the company's total equity at 3,270 billion yuan; the cash flow discount method estimates the total equity value of the company at 3,554 billion yuan. Combining the two valuation methods, the company's overall long-term fair value was 32.70-35.54 billion yuan, the price-earnings ratio range corresponding to the parent net profit in 2023 was 23.25-25.27 times, and the price-earnings ratio range for net profit attributable to shareholders of the parent company after deducting non-recurring profits and losses in 2022 was 32.06-34.84 times.

Risk warning: risks related to performance and valuation; risk of fluctuations in the company's operating performance; risk of implementation of fund-raising projects; increased market competition; brand and credibility affected by adverse events; reduced demand for certification, inspection and testing due to the slowdown in macroeconomic growth; changes in policies and industry standards; loss of technical talent; risk of rental defects, etc.

Special risk warning for the bid report: Zhongtai Securities Co., Ltd. is the sponsor (lead underwriter) of the China Machinery certification covered by this report. This report is an independent judgment made by our researchers based on publicly available information on China Machinery Certification.

Investors should fully and thoroughly understand the various risks involved in the securities market and act with caution. Profit forecasts are based on certain assumptions. If the assumptions are not true or the deviation is large, the company's profit forecasts and valuation conclusions will be greatly biased. Investors should independently evaluate and judge the information and opinions in this report and bear their own risks.