The National Inspection Group is a national inspection and inspection agency controlled by central state-owned enterprises. It has complete qualifications and strong strength. In the future, the company will have room for internal growth in the fields of stock house inspection, double carbon testing, soil triplication, etc., and will achieve epitaxial expansion through cross-sector and cross-regional mergers and acquisitions. Coverage for the first time, giving the company an increase in holdings rating.
Key points to support ratings
The inspection business of the National Inspection Group covers a wide range of areas, strong strength and excellent qualifications. The National Inspection Group is a state-owned enterprise, mainly engaged in enterprise headquarters management, product quality inspection, and construction project quality inspection and appraisal. Its business scope covers the fields of construction, building materials, environment, energy efficiency, electronics, automobiles, food, medical care, metrology, etc., and the scope of services covers the whole country. As a national inspection and certification agency, the National Inspection Group has a highly qualified and professional technical team, advanced inspection and testing equipment and scientific testing methods, and can provide fair and authoritative inspection and certification services for our customers. The National Inspection Group also has national inspection centers such as the National Construction Engineering Materials Quality Supervision and Inspection Center and the National Building Materials Industry Technical Supervision and Research Center, which can provide a full range of inspection services for the building materials industry.
The testing industry is currently experiencing three major trends of marketization, scale expansion, and centralization. Marketization: After the 13th Five-Year Plan, the testing industry accelerated its expansion from the past national monopoly to the marketization stage. The share of enterprises gradually expanded, and the share of public institutions declined. Scale expansion: The market size, number of enterprises, and number of employees in the testing industry have gradually increased in recent years, and the share of testing in emerging fields is expanding. Centralization: The testing industry is gradually moving from “small and scattered” to “big and strong”. Against the backdrop of increased market competition and the country's encouragement for the integration of resources in the testing industry, it is becoming a general trend to increase industry concentration through mergers, acquisitions and restructuring.
Endogenous epitaxial growth is accelerating. Stock housing testing: Houses completed in the past have gradually reached the age of 20-30 years. Recently, safety incidents such as house collapses have prompted the central government and local authorities to separately introduce policies related to stock housing testing. We estimate that the market space for stock housing testing in 2024 may be close to 50 billion yuan. Dual carbon testing:
CEA carbon trading gradually progressed, and CCER restarted in October. As many heavy emission industries are gradually included in carbon trading in the future, the space for carbon-related testing and inspection is expected to increase further. Environmental monitoring: Soil Sanpu is of great significance. 2024 will be an important time point for field investigation and sampling. A total of 14 laboratories of the National Inspection Group were selected as “Soil Sanpu” testing laboratories of the State Council. As of November 2023, the company's Soil Sanpu business has achieved a contract amount of about 150 million yuan, which exceeds the forecast at the beginning of the year. We expect this part of the order to be gradually confirmed in 2024. Outreach growth: In recent years, the company has gradually accelerated the pace of external cross-sector and cross-regional mergers and acquisitions, and has built a central and local cooperation mechanism through the “Zaozhuang Model” to strengthen alliances to enhance the effects of mergers and acquisitions.
Investment advice
We are optimistic that the company will deepen its competitive advantage and broaden its revenue streams through a multi-dimensional layout across fields. We expect the company to achieve revenue of 26.3, 31.4, and 3.78 billion yuan in 2023-2025, and net profit of 2.36, 3.16, and 402 million yuan, corresponding to price-earnings ratios of 27.0, 20.2, and 15.9 times. The first coverage will be given an increase rating.
The main risks faced by ratings
The risk of impairment of goodwill, the risk of accounts receivable, the risk of creditworthiness being affected by adverse events, real estate sales continue to weaken, and the pace of stock housing inspections is slower than expected.