In 2023, net profit attributable to mother decreased by 60%-70% year on year, lower than our expectations. In 2023, the company's net profit to mother was 0.96 to 128 million yuan, down 60%-70% year on year; after deducting non-net profit, it was 72-104 million yuan, down 62%-74% year on year. We estimate that net profit for the 4Q23 quarter - 9.13 million yuan to 22.95 million yuan, a year-on-year decrease of 84%-107%; after deducting non-net profit - 21.53 million yuan to 10.73 million yuan, a year-on-year decrease of 91% - 118%. The performance fell short of our expectations. We determined that it was mainly due to factors such as large impairment losses, contraction in medical infection businesses, and increased investment in development expenses in emerging fields.
Key points of interest
In '23, the company estimates impairment losses totaling $143 million. According to the company's announcement, the company needed to accrue credit impairment losses of 84.62 million yuan and asset impairment losses of 58.68 million yuan, for a total of 143 million yuan; 4Q23 needed to accrue credit impairment losses of about 52.84 million yuan and asset impairment losses in a single quarter, totaling 97.38 million yuan. Our judgment is mainly due to bad debts in the medical infection business, disposal of assets and consumables, food environment and other sectors. We estimate that most of the bad debts and equipment impairment brought about by the medical infection business are either completed, affected by the impairment, or gradually cleared.
Excluding the impact of bad debts, we estimate that the profit center in '23 was still under pressure at -20.3% YoY. In '23, the company predicted a profit center of -65% YoY, with profit falling sharply. Excluding the impact of deductions, we estimate that the profit center was -20.3% YoY, 4Q23 profit center profit center was -25.6% YoY, and the profit side was under overall pressure. We determined that it was mainly affected by factors such as the slowing pace of implementation of Sanpu in the field of environmental testing, the tightening of the medical sector, and high competitive pressure on leading companies in the medical industry, etc., due to the slowdown in revenue growth.
By sector: 1) Food environment: We expect revenue to remain flat year over year, with orders falling short of expectations, and orders are expected to be gradually released in 1Q24; 2) Medicine: Affected by the contraction of medical infection business, etc.; 3) Consumer goods: We expect competition in the cosmetics industry to increase growth pressure; the automotive market is expanding smoothly and achieving significant growth; 4) Batteries: We judge that downstream demand is strong and growing strongly. In 4Q23, various sectors are clearly divided. With the gradual release of orders from Sanpu, positive trends in the fields of medicine, medical devices, cosmetics, etc., and rapid growth in the automotive and battery sectors, we expect the company's revenue and profit to pick up in 24 years.
Profit forecasting and valuation
Considering the contraction in the medical infection business, demand pressure, and high impairment losses, we lowered our 2023/24 profit forecast by 55.9%/10.8% to 1.13/297 million yuan, and first introduced a profit forecast of 340 million yuan for 2025. The current stock price corresponding to 2024/2025 P/E is 16.7x/14.6x. Considering the decline in the valuation center of the third-party testing sector and the pressure on the company's profit, the valuation switched to 2024, and we gave 20.0 times the 2024 P/E and lowered the target price by 40.5% to 10.87 yuan, which has 20.1% upward space compared to the current one.
risks
Downstream demand falls short of expectations; investment project implementation risks.