Focus on automobile inspection business and acquire Sansi to expand testing machines
The Stock Credit Testing Standard is the earliest third-party testing agency in China that engages in testing services. The service areas cover automobiles, electronics, consumer goods, new energy, industrial products and components, life sciences, etc., to provide customers with technical services and solutions such as testing, certification, and standard research and development. In the automotive field, the company mainly serves automotive and auto parts enterprise R&D centers, focusing on automotive R&D stage testing and certification (DV/PV). Core technical capabilities include smart cockpits, chassis, high-voltage wiring harnesses, new energy charging and discharging, etc. Customers include well-known domestic automobile manufacturers such as SAIC Motor, BAIC, BYD, and NIO; in the electronic and electrical field, the company's business includes electromagnetic compatibility testing, safety testing, physico-chemical testing, reliability testing, etc., mainly serving overseas certification of new products of consumer electronics companies. In addition, customers include well-known enterprises such as Huawei, Xiaomi, and Gree; The company is also involved in testing business in the fields of consumer goods, health and environmental protection. Relying on the testing machine business provided by the subsidiary Sanshi Zongheng, etc., the future business will also be extended to the field of weapons and equipment testing.
The acquisition also added business, and the performance continued to grow at a high rate. In 2020-2022, the company's revenue and net profit increased rapidly, with compound annual growth rates of 37.80% and 40.24%, respectively. In the first three quarters of 2023, the company achieved operating income of 511 million yuan, an increase of 27.34% over the previous year. Mainly, the company completed the acquisition of Sanshi Zongheng in September 2021 to expand revenue scale; net profit was 133 million yuan, an increase of 40.12% over the previous year.
In terms of the third quarter alone, 23Q3 achieved revenue of 181 million yuan, up 20.27% year on year, +1.12% over Q2, and net profit of 51.1264 million yuan, up 31.87% year on year, and +1.09% month on month in Q2.
Gross margin is at a high level in the industry, and economies of scale enhance profitability. In 2020-2023Q3, the company's comprehensive gross margin was 59.93%/58.65%/57.14%/59.76%, respectively, which remained stable. By product, in the first half of 2023, the company's gross margins in the fields of automotive, electronic and electrical, consumer goods, health and environmental protection, and testing equipment were 73.46%, 59.11%, 65.99%, 12.69%, and 45.92%, respectively, up 2.89pct, 1.07pct, 0.74pct, 39.63pct, and 2.39pct respectively from 2022. Among them, the increase in gross margin in the automotive and electronic testing fields was mainly due to economies of scale brought about by business revenue growth.
Build a dual-use military and civilian testing base and expand the NEV laboratory. The total amount of capital raised by the issuance of convertible corporate bonds to unspecified targets is RMB 545,000 (including principal amount). After deducting the issuance fee, it will all be used for: (1) the “Central China Military and Civilian Dual-Use Testing Base Project”, which plans to build a new military and civilian dual-use testing base in Central China. The construction period of the project is 24 months. After completion, the company's inspection service technical capabilities will be further extended to the military industry. The total annual net profit of Wuhan Credit Testing will be increased by 17.4975 million yuan; (2) “Laboratory expansion projects in the field of new energy vehicles”, including Suzhou and Suzhou Dongguan, Guangzhou, Ningbo, and Nanshan are planning to expand the testing laboratory facilities environment and decoration, purchase new testing instruments and equipment, preparation fees, and base working capital in various regions. After completion of the project, the company's testing capabilities in the field of electromagnetic compatibility (EMC) for new energy vehicles, environmental reliability of new energy vehicles, and on-board charging device (OBC) testing capabilities will complement the existing traditional fuel vehicle testing business and enhance regional competitiveness. It is estimated that all regions will increase net profit by an average of 19.4406 million yuan per year.
Analysis of debt conversion terms:
The Credit Test Standard issued an announcement on November 24, 2023, and the Credit Test Convertible Bonds will be listed on November 29. The issuance scale of credit test convertible bonds was 545 million yuan, and the bond rating was AA-grade. According to an estimate of the maturity yield of 6.1984% of corporate bonds of the same grade as Chinese bonds on November 24, the debt base was about 84.53 yuan. On November 24, the parity of credit conversion bonds was 97.32 yuan, and the debt base protection was fair. In terms of terms of clauses, the three major clauses are in order.
Risk warning: changes in preferential tax policies, demand falls short of expectations, and project commissioning falls short of expectations.