Description of the event
Su Test released its 2024 quarterly report. In 2024Q1, the company achieved revenue of 442 million yuan, up 1.03% year on year; net profit to mother was 0.42 million yuan, down 4.86% year on year; net profit after deducting non-return to mother was 40 million yuan, down 1.81% year on year.
Incident comments
The growth rate of 2024Q1 revenue and net profit to mother slowed due to high base and weak demand in the same period last year. 2024Q1's revenue/net profit growth rate was 1.03%/-4.86%, respectively. Revenue and profit performance were slightly slow, due to: 1) High base:
The year-on-year growth rates of revenue and net profit for the same period last year were 27.45% and 53.70%, respectively; 2) Weak demand: Speculated to be related to the slowdown in the growth rate of new related orders, lengthened order execution cycles, and delays in overall revenue confirmation due to special events in the military industry since Q2 last year. Looking ahead to 2024, we believe that downstream demand is expected to be boosted: 1) Test equipment: The “Implementation Plan to Promote Equipment Renewal in the Industrial Field” released on April 9, 2024 clearly emphasizes the direction of test and testing equipment; 2) Testing services: the most difficult period for testing business in special industries has passed, and orders are expected to be released one after another; demand for NEV testing continues to be strong, and the company's three-power system testing laboratory capacity continues to expand; 3) Integrated circuits: the recovery in consumer electronics demand is compounded by the expansion of Yite production, and the revenue growth rate is expected to increase.
2024Q1 net margin was 10.21%, down 1.57pct year over year. 1) Gross profit margin: 2024Q1's gross profit margin was 42.5%, down 0.99 pct year on year. The gross margin for equipment sales/testing services/integrated circuit testing was -1.01 pct/+1.85pct/-13.80pct year on year. The decline in integrated circuit gross margin stemmed from the semiconductor subsidiary Yite expanding production ahead of schedule and increasing operating costs due to increased equipment production capacity and personnel. 2024Q1 may still have some impact. Production capacity has gradually been put in place. Subsequent capacity utilization increases, profit margin probability improved after absorbing upfront costs; 2) Cost ratio: The cost rate during the 2024Q1 period was 31.13%, up 2.19 pct year on year. Among them, the sales/management/R&D/finance cost ratio changed by 1.31 pct/-0.19 pct/0.97 pct/0.10 pct respectively. It is estimated that sales expenses increased slightly year-on-year due to the initial launch of Yite's new production capacity, and then the expected cost rate declined as order revenue was released.
2024Q1 cash flow improved year over year. 2024Q1's net operating cash flow was -62 million yuan, a slight improvement from -84 million yuan in the same period last year, and the revenue ratio increased by 3.9 pct to 95%; the military industry accounts for a relatively high share of the company's downstream customers. The first quarter is usually a low repayment season, and the net operating cash flow is negative. The second half of the year is usually a peak of repayment.
Actively expand application areas and continue to invest in production capacity. At the end of 2023, the original value of housing and buildings in the company's fixed assets increased 24.1% year on year, and the original value of machinery and equipment increased 32.6% year on year. Production capacity expanded rapidly, supporting subsequent performance growth. The company is currently building a wireless testing laboratory in Shenzhen (5G product testing, which is expected to be put into operation in the second half of the year); speeding up the expansion of NEV product testing centers and aerospace product testing laboratories to continue expanding downstream fields; and setting up special laboratories in Luzhou, Mianyang and other places to refine the construction of test service networks. In recent years, the company has continued to increase site construction and equipment expansion for laboratories in Suzhou, Xi'an, Qingdao, Chengdu, etc.; in 2022, Shanghai Yite increased capital by 380 million yuan to expand integrated circuit testing and verification capabilities in Shanghai, Shenzhen and Suzhou, and the expansion of production is progressing smoothly.
Profit forecasting and valuation: The company has advantages in its technical capabilities and service network in the field of military industry/new energy vehicle/semiconductor testing. Phased disruptions in military testing will not change medium- to long-term demand; Yite's upfront costs will gradually be digested, and profit restoration is expected. The company is expected to achieve revenue of 23.8/27.7/3.18 billion yuan in 2024-2026; net profit to mother of 382/4.66/ 569 million yuan, an increase of 21.5%/22.1%/22.1% year-on-year, corresponding to PE valuation of 18.8x/15.4x/12.6x. Maintain a “buy” rating.
Risk warning
1. Risk of declining profitability due to increased competition in the industry; 2. Risk that laboratory capacity utilization falls short of expectations.