Incident: Radio and Television Metrology revealed the 2023 annual report. The company achieved revenue of 2,889 billion yuan in 2023, an increase of 10.94%; net profit to mother was 199 million yuan, an increase of 8.39%; and gross profit margin was 42.28%, an increase of 2.66 pts over the previous year.

The physical inspection business is developing steadily, and the integrated circuit business is leading the overall growth rate in 2023. Against the backdrop of mid-term adjustments in the specialty industry and weakening demand in some inspection sectors, the company's physical inspection business still achieved steady growth. Looking at it separately, measurement services achieved revenue of 7.18 yuan in 2023, an increase of 18.79%. We believe that the growth is mainly due to the company's stable leading position in the domestic measurement field and good order situation; reliability and environmental testing business revenue of 663 million yuan, an increase of 8.17%, and electromagnetic compatibility testing revenue of 329 million yuan, an increase of 11.31%. We believe that these two businesses were affected by mid-term adjustments in special industries in 2023 and are expected to gradually recover in 2024; the integrated circuit testing and analysis business achieved revenue of 202 million yuan in 2023 This is an increase of 34.21%. We believe that the high growth rate of this business is due to the fact that the company carried out key construction in this sector in the early stages. In 2023, industry demand was well matched with new production capacity, and it is expected to become a new growth point for the company's inspection business in the future.

The company's operations continue to improve efficiency, and the cash repayment situation is trending well

Radio and television metering in 2023 focuses on improving operational efficiency. We think it is mainly reflected in the following aspects:

First, the company strengthened receivables management. In 2023, the company's net cash flow from operating activities was 647 million yuan, with a ratio of 314% to net profit, and repayment of 2,929 billion yuan in the reporting period, compared with 101.40% of operating income. Net cash flow from operating activities increased by 99 million yuan year on year, an increase of 18.02% over the same period, and the cash repayment trend is good. Second, the company may have reduced some of its businesses to optimize overall operating efficiency. For example, in 2023, the company's food and environmental inspection business achieved revenue of 154 million yuan and 161 million yuan, respectively, down 14.46% and 9.64% year-on-year respectively. We believe that the decline in revenue from these two businesses is on the one hand due to weakening industry demand, and on the other hand, the company may actively control the business rhythm to optimize resource allocation in these two sectors, thereby improving profitability as much as possible.

It has gradually entered the field of low-altitude economy. It has cooperated with some enterprises to carry out testing business. Currently, radio and television measurement is already developing low-altitude economy business in both R&D and business directions. On the R&D side, Radio and Television Metrology has completed the “Key Technology and Application Research for UAV Airworthiness Verification” in 2023. Through this project, the company will form airworthiness compliance verification requirements and test method standards for various types of drones below 150 kg, and establish a drone airworthiness compliance verification system covering laboratory tests, ground tests, and test flight tests. On the application side, according to the company's public questions and answers, Radio and Television Metrology has cooperated with Ehang Intelligence to test the airworthiness of some aircraft. The business includes testing various aspects such as flight control, airborne communication, and power units.

With the gradual development of the low-altitude economy, radio and television measurement is expected to open up more room for development.

Investment advice:

As one of the few one-stop service enterprises in the testing industry that combines measurement and calibration, reliability and environmental testing services, electromagnetic compatibility testing, and consumer sector testing capabilities, the company's leading effect may gradually become prominent. Currently, radio and television measurement has obvious brand advantages in South China. It is expected that in the future, it will continue to benefit from the rapid development of sectors such as special industries, new energy, rail transit, and integrated circuits, and achieve a steady increase in market share. We forecast that the company's revenue for 2024-2026 will be 35.79 billion yuan, 4.254 billion yuan, an increase of 23.9%/18.9%/18.8%; the net profit for 2024-2026 will be 3.28, 4.07, and 509 million yuan respectively, up 64.2%/24.3%/24.9% year on year, and the target price for 6 months is 19.95 yuan, corresponding to 35XPE in 2024.

Maintain an “Accumulation - A” rating.

Risk warning: New laboratory testing capacity falls short of expectations, industry competition intensifies