Description of the event
Radio and Television Measurement released its 2023 annual report, achieving full year revenue of 2.89 billion yuan, up 10.9% year on year; net profit to mother of 199 million yuan, up 8.4% year on year; net profit after deducting non-return to mother was 174 million yuan, up 78.9% year on year.
Among them, 2023Q4 achieved revenue of 926 million yuan, a year-on-year decrease of 1.9%; net profit to mother was 67 million yuan, a year-on-year decrease of 38.8%; and net profit after deducting non-return to mother was 62 million yuan, an increase of 2.8% year-on-year.
Incident comments
The year-on-year growth rate of the company's revenue slowed in 2023, with the sector dominated by government customers being dragged down significantly. By business segment, measurement and calibration revenue of 718 million yuan (YoY +18.8%); reliability and environmental testing revenue of 663 million yuan (YoY +8.2%); integrated circuit testing and analysis revenue of 202 million yuan (YoY +34.2%); electromagnetic compatibility revenue of 329 million yuan (YoY +11.3%); chemical analysis revenue of 170 million yuan (YoY +12.2%); food testing revenue of 154 million yuan (YoY -14.5%); ecological environment testing revenue of 161 million yuan (YoY +14.5%) YoY -9.6%); EHS evaluation service revenue of 176 million yuan (YoY -10.8%). Among them, the growth rate of measurement and calibration and integrated circuits is high, and the growth rate of reliability, environmental testing, and electromagnetic compatibility is slowing down due to military industry factors; while the weak sector's food testing/ecological environment testing/EHS sector has a high share of government customers and local financial pressure, revenue has declined a lot.
The net interest rate in 2023 was 7.14%, a slight year-on-year decrease, mainly affected by the impairment of the goodwill of the subsidiary Zhongan Guangyuan. The gross margin for the whole year was 42.3%, up 2.65 pct year on year. Among them, the gross margin of measurement calibration, reliability and environmental testing all increased, the gross margin of electromagnetic compatibility decreased slightly by 2.31 pct, the gross margin of integrated circuits decreased by 2.71 pct, the gross margin of the EHS evaluation consulting business decreased by 4.88 pcts year on year, and the gross margin of food testing and ecological environment testing increased while controlling order quality, but the absolute value was still low. Judging from the cost structure, direct labor costs increased 10.1% year on year, which is basically comparable to the revenue growth rate. Operating expenses and others only increased by 0.76%, reflecting that the company has achieved results in controlling the number of employees. The cost rate remained stable during the period. In 2023, the company accrued asset impairment losses of 53 million yuan, a significant increase from 40 million yuan in 2022. The main factor was that the performance performance of the company Zhongan Guangyuan (EHS Evaluation Consulting) fell short of expectations, with an accrued impairment of goodwill of about 51 million yuan (42 million yuan in 2022, but during the performance commitment period, the seller compensated the company for performance of about 38 million yuan).
Improved cash flow. The net cash flow from the company's operating activities for the year was 647 million yuan, an increase of 18.0% over the previous year.
Focus on shareholder returns. The company made it clear in its three-year (2023-2025) shareholder return plan that the cumulative profit distributed in cash is not less than 30% of the annual profit distributed, and that the 2023 cash dividend will be distributed about 86 million yuan.
The equity incentive draft was introduced, and the replacement of the chairman/general manager/director secretary was completed. In mid-October 2023, the company released the 2023 Stock Options and Restricted Stock Incentive Plan (draft), which was granted to cover the company's 6 deputy general managers/financial chiefs/other managers and core executives. The assessment indicators include net profit deducted from non-return to mother, cash return on net assets, cash operating index, and R&D investment growth rate. In December 2023, the company changed its chairman/general manager/director. In 2024, the new management team will “fully implement refined management centered on quality and efficiency to vigorously promote cost reduction and efficiency” and “establish a profit-centered assessment model”; and reduce food/ecological environment loss laboratories in a timely manner.
Profit forecast and valuation: The company's revenue for 2024-2026 is expected to be 3.325 billion yuan/3.806 billion yuan/4.363 billion yuan, up 15.1%/14.5%/14.6% year on year; net profit due to mother was 323 million yuan/423 million yuan/538 million yuan, up 61.9%/31.0%/27.1% year on year, corresponding to PE valuation of 26.5x/20.2x/15.9x; maintaining the “buy” rating.
Risk warning
1. Ecological environment and food testing losses fall short of the expected risk; 2. The net interest rate falls short of the expected risk due to insufficient capacity utilization.