Core views
In the first three quarters of 2023, the company's operating income and net profit increased by 18.26% and 76.81% year-on-year respectively. The performance was in line with our expectations. The overall trend of the company's dominant business sectors was good in the first three quarters. Businesses such as metering services, reliability and environmental testing maintained a relatively rapid growth rate, and the relatively weak business sectors experienced a year-on-year decline in revenue from evaluation consulting, food testing, and ecological environment testing businesses. The net cash flow from the company's 2023Q3 business activities was 159 million yuan, an increase of 33.73% over the previous year. The company continued to strengthen accounts receivable management, and the cash repayment situation was significantly optimized. Furthermore, on October 19, 2023, the company announced the 2023 stock options and restricted stock incentive plan (draft). It intends to grant no more than 17.25 million shares of benefits to incentive recipients, accounting for about 3.00% of the company's total share capital. The equity incentives cover the core backbone, and the unlocking conditions demonstrate confidence in the company's development.
occurrences
① The company released its third quarter report. In the first three quarters, it achieved revenue of 1,963 billion yuan, up 18.26% year on year; net profit of 133 million yuan, up 76.81% year on year; Q3 achieved revenue of 732 million yuan, up 10.15% year on year; and net profit of 73 million yuan, up 29.59% year on year.
② On October 19, 2023, the company announced the 2023 stock options and restricted stock incentive plan (draft). It intends to grant no more than 17.25 million shares of benefits to incentive recipients, accounting for about 3.00% of the company's total share capital.
Brief review
Q3 Profitability continues to improve, accounts receivable management is enhanced
The company's revenue for the first three quarters of 2023 increased 18.26% year on year. By sector, the overall trend of the dominant business sectors in the first three quarters was good. The revenue growth rate of the measurement service, reliability and environmental testing business was around 20%, the volume of the integrated circuit testing business was relatively small, the revenue growth rate of the electromagnetic compatibility testing business was more than 40%, and the revenue growth rate of the electromagnetic compatibility testing business was less than 20%; in the company's relatively weak business sector, revenue from the evaluation consulting business fell by more than 20% year on year, and revenue from food testing and ecological environment testing business fell slightly year on year, and overall losses were reduced.
Profitability continues to improve. The gross margin of 2023Q3 company was 43.51%, up 3.54pct year on year; the total cost ratio for the period was 30.92%, a year-on-year decrease of 0.93pct, of which sales, management, R&D, and financial expenses were 13.21%, 6.80%, 10.32%, and 0.59%, respectively -1.42 pct, +0.29 pct, +0.21 pct, -0.02pct; 2023Q3 net profit margin was 9.92%, up 1.49pct year on year. The overall operating conditions of 2023Q3 have remained relatively stable, and profitability has steadily increased.
The management of corporate accounts receivable has been strengthened. The net cash flow from the company's 2023Q3 business activities was 159 million yuan, an increase of 33.73% over the previous year, mainly because the company continued to strengthen accounts receivable management and the cash flow situation was significantly optimized. Among them, the cash received from the sale of goods and the provision of labor services increased by 69 million yuan over the same period last year.
Equity incentives cover the core backbone, and the unlocking conditions highlight the company's confidence. On October 19, 2023, the company announced the 2023 stock options and restricted stock incentive plan (draft). It plans to grant no more than 17.25 million shares of benefits to incentive recipients, accounting for about 3.00% of the company's total share capital. The details are as follows:
Incentive tools: The number of stock options the company plans to grant to incentive targets is no more than 8.6250 million, accounting for about 1.50% of the company's total share capital; the number of restricted shares to be granted by the company is not more than 8.6250 million shares, accounting for about 1.50% of the company's total share capital. The number of stock options granted to incentive recipients and the number of restricted stocks in this incentive plan are distributed in equal amounts according to a 1:1 ratio.
Exercise price: The exercise price for stock options granted in this incentive plan is 14.71 yuan/share, and the grant price for restricted shares is 8.83 yuan/share.
Incentives: The incentive targets granted in this incentive plan are not more than 623 people, including senior management of the company, other managers who have a direct impact on the company's business performance, and core cadres.
Performance assessment target: The assessment year is 2024-2026.
① Net profit: Based on the average net profit after deducting non-return net profit in 2020-2022, net profit after deducting non-return net profit in 2024-2026 was not less than 82%, 128%, and 175% respectively, that is, non-return net profit was not less than 2.33, 2.92, and 352 million yuan, respectively, and not lower than the average level of the same industry; ② Cash return on net assets: 2024-2026 EOE is not less than 25%, 27%, 28.5%, and not lower than the industry average; ③ Cash operating index: 2024-2026 cash Operating indices are not lower than 0.93, 0.95, and 0.97; ④ R&D investment: Based on the average R&D investment in 2020-2022, R&D investment increased by 52%, 75%, and 100% respectively in 2024-2026, that is, R&D investment was not less than 3.49, 4.02, and 459 million yuan respectively.
The equity incentives target a wide range of about 623 people, and by awarding stock options and restricted stocks in equal amounts, the personal interests of employees are tied to the company's development performance, which helps to further strengthen team cohesion and stimulate the subjective activism of employees. In addition, the company's performance goals in the exercise conditions are assessed by selecting multiple indicators, which help to comprehensively improve the company's ability to continue to grow, as well as its ability and quality of operation in terms of shareholder returns and company value creation. The index setting takes into account the interests of the incentive target, company, and shareholders, and is expected to play a positive role in promoting the company's future business development.
Investment suggestions: The company is expected to achieve operating income of 30.87, 37.30 and 4.434 billion yuan in 2023-2025, with year-on-year increases of 18.55%, 20.82% and 18.88% respectively, and net profit of 2.68, 3.89 and 515 million yuan respectively, up 45.62%, 45.34% and 32.29%, corresponding to PE 32.25, 22.19 and 16.78 times, respectively, maintaining the “buy” rating.
Risk warning: ① The risk that the company's credibility, brand, and reputation will be affected by adverse events. As an independent third party measurement, testing and evaluation consulting agency, credibility, brand and reputation are fundamental to the survival and development of the company, and are also important reasons for obtaining orders for measurement, testing and evaluation consulting services. If an incident that damages credibility, brand and reputation occurs, it will seriously affect customer choices, affect the company's business development, and in serious cases, the company's continued operation.
② The risk of increased competition in the market. There are many inspection and testing service agencies in China, and the market concentration is relatively low. With the government's gradual liberalization of the inspection and testing service market, private institutions are facing better development opportunities. Foreign-funded institutions are also entering China's inspection and testing services market with strong capital strength and rich operating experience, and market competition within the industry will become increasingly fierce. In the face of fierce market competition, it may be difficult for the company to explore new markets and there is a risk that its existing market share will be crowded out by competitors, which will adversely affect the company's business development.