Revenue for the first three quarters of 23 million yuan and net profit for the first three quarters was 30.32 million yuan, up 13.9% and 1.2% respectively. According to the company's report for the third quarter of 2023, the first three quarters achieved revenue of 390 million yuan, an increase of 13.9% over the previous year, net profit of 303.15 million yuan, an increase of 1.2% year on year; net profit after deduction of 17.026 million yuan, up 2.6% year on year. In Q3 of 2023, revenue was 140 million yuan, up 25.9% year on year; net profit was 2.126 million yuan, down 74.8% year on year. Results for the third quarter were under pressure, or were affected by vehicle inspection policies in the short term, and the superposition of new businesses was still in the development stage.

Short-term profitability is under pressure: In the first three quarters of 2023, the company's gross margin was 45.96%, down 5.21PCT year on year, net profit margin was 6.85%, down 4.91 PCT year on year. In 2023, Q3's gross margin was 43.65%, down 11.25PCT year on year, net profit margin was 0.26%, down 10.78 PCT year on year.

Continued increase in R&D investment: The cost rate for the first three quarters of 2023 was 38.33%, a year-on-year decrease of 2.70 PCT.

Among them, the sales expense ratio was 8.84%, a year-on-year decrease of 2.34PCT; the management expense ratio was 22.22%, a year-on-year decrease of 2.05PCT; the financial fee rate was -2.22%, a year-on-year decrease of 1.32PCT; and the R&D fee rate was 9.49%, up 3.01PCT year-on-year. Significant increases in R&D investment may result in the company's expansion into industries such as battery testing equipment and safety systems, power exchange equipment, integrated die-casting machines, and intelligent electric injection molding, creating new performance growth points.

The company is expected to benefit from the renewal of new energy vehicle inspection equipment. It has long been committed to building a domestic vehicle inspection operation chain brand company based in the automotive aftermarket. It is the leading domestic motor vehicle inspection leader in use, entering the downstream inspection and operation service market from the equipment end to create an integrated service platform. The company's two main businesses are motor vehicle inspection systems and inspection and operation services, accounting for 58% and 34% of revenue in the first half of 2023, respectively.

Motor vehicle inspection system: The company is the leader in domestic vehicle inspection systems, and may give priority to benefiting from the introduction of future NEV testing standards. On June 30, 2023, the “New Energy Vehicle Operation Safety Performance Inspection Regulations” was released for comments. It is proposed to carry out supplementary tests on the operational safety performance of new energy vehicles. The required testing equipment involves four major test items: power battery safety, drive motor safety, electronic control system safety, and electrical safety. It is expected that the content and difficulty of testing new energy vehicles will increase in the future, and the increase in the industry threshold is expected to optimize the competitive landscape. The company already has equipment and technology research and development reserves, and after the standards are officially introduced, it may benefit priority, becoming a new growth point for the company's new performance. As of December 11, 2023, the standards are under review.

Operation services: The company explores chain management to achieve brand operation services through acquisitions and new testing stations, etc., which is expected to become a source of growth in the company's long-term performance. As of the end of 2022, the number of testing stations directly operated by the company was 41. Since 2023, the company has acquired 11 new testing stations, and continues to focus on expanding the motor vehicle inspection operation service market and speeding up the inspection station merger and acquisition process.

Profit forecasting and valuation

Net profit for 2023-2025 is expected to be 0.51, 1.23, and 202 million yuan respectively. In 2024-2025, year-on-year increases of 138.48% and 64.56%, respectively, corresponding to PE of 83, 35, and 21 times, maintaining the “increased holdings” rating.

Risk warning: 1) the motor vehicle inspection policy has been further relaxed; 2) the acquisition and integration of motor vehicle inspection stations falls short of expectations; 3) the development of new businesses falls short of expectations.