Description of the event
Donghua Testing released its 2023 Annual Report and 2024 Quarterly Report. In 2023, the company achieved operating income of 378 million yuan, +3.03% year on year; realized net profit of 88 million yuan, -27.94% year on year; realized net profit without deduction of 85 million yuan, -27.72% year on year.
In 2024, Q1 achieved operating income of 104 million yuan, +45.16% year over year, and realized net profit of 27 million yuan, +165.70% year over year; realized net profit without deduction of 27 million yuan, +176.87% year on year.
Incident comments
In 2023, the company was mainly affected by the pace of revenue recognition. Revenue growth slowed, and performance declined year-on-year. However, some projects have been delayed until this year to gradually confirm revenue. 2024Q1's revenue and net profit levels increased sharply year-on-year, or indicate that project acceptance is progressing steadily. Confirmation of revenue from some orders from last year this year is expected to consolidate this year's performance growth. In terms of profit level, the company's gross margin and net margin in 2023 were 65.47%, 23.20%, -2.07pct, and -9.97pct, respectively. Among them, the gross margins of structural mechanical performance testing and analysis systems (-2.07pct), structural safety online monitoring and defense equipment PHM systems (-3.84pct), electrochemical workstations (-0.83pct), and PHM-based intelligent equipment maintenance management platforms (-4.65pct) all declined to varying degrees. Although gross margin declined slightly, it remained high. At the same time, the company's net interest rate level declined due to increased investment in sales expenses and R&D expenses.
2024Q1 was accompanied by a rapid recovery in revenue growth. The company's gross margin and net margin were +1.79 pct and 11.87 pct, respectively; increased by 5.59 pct and 18.72 pct month-on-month, and profitability performance improved markedly.
The company has mastered the core technology of structural mechanical properties, continues to expand high-end market brands, and promote domestic substitution. Core technologies such as small signal amplification and anti-interference system solutions are the company's traditional advantages. Domestic card position advantages are obvious. They have provided application products and solutions for many major domestic tests and solved many difficult field problems. The level of application technology is already in a leading position in the country, and its market share continues to increase in some industries. Currently, similar products from abroad still occupy most of the domestic market share, and the high-end application field is even more obvious. The company continues to optimize existing products, and on the premise of guaranteeing or improving existing performance indicators, the company reduces costs for some products to further enhance product competitiveness. At the same time, it competes head-on with foreign brand products in the high-end market and continues to promote domestic substitution. The company's structural mechanical properties testing and PHM business operations are expected to maintain steady growth.
The sensor product line is progressing steadily, and many new businesses are being expanded to consolidate long-term growth space. The company has increased the optimization and transformation of sensor production lines and developed a large number of new products. For example, products such as cable displacement sensors have improved product performance. Integrated eddy fluidized sensors have entered mass production. Small batches of acoustic emission sensors, high temperature pressure sensors, optical fiber grating sensors, etc. have been tested in small batches and promoted in local markets. Six-component force sensors, impact pulse sensors, and magnetostrictive sensors have entered the internal development stage.
At the same time, the custom measurement and control analysis system has expanded functions and extended applications on the basis of traditional main products, and has been successfully applied by various project plants in 23 years, including a certain unit's airborne system project and the Hongdu aircraft landing gear hydraulic control project. In addition, the company's electrochemical workstation business ushered in a harvest period, showing rapid growth in revenue in 23 years. Currently, the company is still investing in the development of new technologies for data analysis methods in the field of electrochemistry to enrich the existing product system, and the sector business is expected to continue to contribute to revenue growth.
Maintain a “buy” rating. Domestic replacement+new business development combined with last year's orders confirmed revenue this year, and the company's performance is expected to increase rapidly this year. The company is expected to achieve net profit of 210 to 30 million yuan in 24-25, corresponding PE of 28x and 19x respectively, maintaining a “buy” rating.
Risk warning
1. The risk that new products and new projects will not achieve the expected benefits; 2. Risks affecting revenue and performance due to rising raw material prices and failure to meet expectations.