occurrences

The company announced on April 24 that in 2024Q1, it will achieve revenue (442 million yuan, +1.03% year over year), net profit margin (O.42 billion yuan, -4.86% year on year), gross profit margin (42.47%, -0.99pcts year on year), and net profit margin (10.21%, -1.57pcts year on year). On March 28, it was announced that in 2023, revenue ($2,117 million, +17.26%), net profit to mother ($314 million, +16.44%), gross profit margin (45.60%, -1.06pcts), and net profit margin (17.42%, +0.16pcts) will be achieved.

Test equipment and testing services complement each other to help the company develop

The company has always focused on R&D and sales of environmental testing equipment and providing environmental and reliability testing services. Later, through the acquisition of Shanghai Yite, it entered the field of integrated circuit testing to create a “one-stop” inspection service platform covering semiconductor chips to full-machine products, forming a layout of three main business segments. The company's test equipment manufacturing and testing services not only lead each other in technology, but also promote each other in business, and are widely used in aerospace, research institutes, ships, electronics and other fields.

Establishing overseas subsidiaries and further improving the test service layout

The company's revenue in 2023 (RMB 2,117 billion, +17.26%) continued to grow. The net profit to mother (RMB 314 million, +16.44%) grew steadily, and the gross profit margin (45.60%, -1.06pcts) and net interest rate (17.42%, +0.16pcts) were basically fluctuating steadily due to the company's deep market segmentation and strengthening new market expansion. Looking at the business segment in 2023: ① Test equipment achieved revenue of 753 million yuan (+23.00%), with a relatively rapid growth rate. The company mainly strengthened technical research, enriched product lines, and expanded new markets and customers. Customers in the new energy and third-party testing institutions grew significantly, leading to an increase in device-side sales. Gross profit margin 32.76% (-1.01pcts), slightly fluctuating, business accounting for 35.56% (+1.66pcts); ② Testing services, achieving revenue of 1,260 billion yuan (+15.52%). The sector covers two parts of the business: environmental and reliability testing services and integrated circuit verification and analysis services. Among them, environmental testing services achieved revenue of 1,003 billion yuan (+19.45%), gross profit margin of 58.80% (+1.86pcts), and the business share continued to increase steadily by 47.39% (+0.87pcts). The main company continued to increase. Increase investment in the fields of new energy, energy storage, aerospace, wireless communications, medical devices, etc., and accelerate the expansion of application areas while improving test capacity and laboratory layout; integrated circuit verification and analysis service revenue of 257 million yuan (+2.34%), and the gross profit margin decreased by 43.28% (-13.79pcts). Mainly due to the company's capital increase and share expansion at the end of 2022, the capital increase of 380 million yuan was used for the expansion of integrated circuit testing and verification capabilities in Shanghai, Shenzhen and Suzhou. Due to the rapid expansion of equipment production capacity and talent reserves, operating costs increased, and profitability was received in the short term Due to some impact, the business share declined slightly by 12.12% (-1.77pcts).

Judging from the subsidiary situation, production capacity of Suzhou Guangbo, Chengdu Guangbo, and Xi'an Guangbo was further expanded in 2023, continuing to increase market development efforts, and performance continued to grow; Beijing Chuangbo strengthened refined management and optimized management, and profitability improved; Shanghai Yite carried out test capacity building to meet growing testing needs, and increased investment in talent reserves and production expansion equipment caused cost-side pressure.

The three-fee rate has declined, and the R&D cost rate has increased slightly

On the cost side, the company's expense ratio (26.37%, y-1.89pcts) declined during 2023, mainly due to a decrease in the three-fee rate (18.50%, -2.31pcts year on year), of which the management fee rate was 10.94% (-1.65pcts year on year), which declined, mainly due to a decrease in share payment expenses (0.1 billion yuan, -59.30% year on year); sales expense ratio 6.40% (+0.05 pcts year on year), fluctuating steadily; financial expenses ratio of 1.16% (y-0.71 pcts year-on-year) ) A slight decrease.

The company continues to strengthen R&D innovation and insist on independent research and development. In 2023, R&D expenses (167 million yuan, +23.91% year on year) increased dramatically, and the R&D cost rate (7.87%, +0.42pcts year on year) also increased slightly.

Accounts receivable increased due to delayed settlement, and investment cash flow decreased due to equipment purchases. On the balance and liability side, the company's accounts receivable in 2023 were 1,117 billion yuan (+38.61% year over year). The increase was mainly due to increased revenue scale and objective factors, and delays in settlement; advance payments (74 million yuan, -17.06% year over year), contract liabilities (170 million yuan, -34.15% year on year), inventory (340 million yuan, -14.05% year on year), raw materials (82 million yuan, -23.41% year on year) ( 62 million yuan, or -48.10% (YoY), all decreased, which we believe was mainly due to changes in the pace of demand.

On the cash flow side, the company's net cash flow from investment activities in 2023 was 622 million yuan (-70.53% YoY), a significant decrease, mainly due to the increase in the company's investment in equipment purchases; the net cash flow from the company's financing activities ($131 million, +649.52% YoY) increased sharply, mainly due to the increase in cash received by subsidiaries absorbing minority shareholders' investments.

2024Q1 revenue scale continued to grow, and expenses increased slightly during the period

2024Q1, the company achieved a slight increase in revenue (442 million yuan, +1.03% year over year), a decrease in net profit to mother (0.42 million yuan, -4.86% year on year), gross profit margin of 42.47% (-0.99pcts year on year), and a slight decrease of 10.21% (-1.57 pcts year on year), mainly due to the increase in period expenses (138 million yuan, +8.66% year over year). Overall, the company's 2024Q1 performance stabilized. As the company continues to lay out new momentum, full-year results can be expected.

On the cost side, the company's expense ratio increased during the 2024Q1 period (31.13%, +2.19pcts year on year), mainly due to the increase in the three fee rates (23.21%, +1.22pcts year on year), including the management fee rate 13.17% (-0.19pcts year on year), sales expenses ratio 8.11% (+1.31pcts year over year), and financial expenses ratio 1.93% (+0.10pcts year on year).

Seize opportunities in the new energy and mobile communication industry and strengthen domestic and foreign market layout With the boom in NEV demand and the accelerated growth in demand for wireless performance products, the company announced at the end of 2022 that it would change part of the capital raised for the “NEV Product Testing Center Expansion Project” and the “Fifth Generation Mobile Communication Performance Testing Technology Service Platform Project”. Afterwards, in order to expand the scope of services and increase the company's business response speed and market share, the “NEV Product Testing Center Expansion Project” added three implementation sites in Chongqing, Guangzhou and Shenyang. The fund-raising project is scheduled to reach the expected state of use in mid-2024. After completion of the project construction, it will strengthen capabilities such as environmental reliability testing, electromagnetic compatibility testing, and mobile communication testing for new energy vehicle parts, improve the company's product line, and support the growth of the company's testing service business.

In addition, the company has built special laboratories in Mianyang, Guizhou, etc., laid out overseas markets, prepared a Thai laboratory, further refined the construction of a test service network, and expanded service coverage.

Environmental testing equipment and environmental testing services cooperate with each other. The industry benefits from the rapid development environment of equipment quality and comprehensive testing methods initially developed to improve the high reliability of military electronic equipment and spacecraft. It runs through all stages of product design to use. It can be said that environmental testing services are basically positively related to product quality. With the rapid development of the aerospace industry, the requirements for improving product performance stability, quality and safety are becoming more and more strict, driving the development of the environmental and reliability testing service industry. However, the development of environmental testing services requires support from test equipment. The performance and quality of test equipment manufacturing directly affects the level of environmental testing services, so market demand continues to rise.

Investment advice

1. The company seizes the opportunity of the integrated circuit industry to increase capital and shares, expand the scale of operations, develop vehicle-grade chip testing services, and improve the material analysis business layout. The expansion of production capacity will lead to an increase in revenue; 2. The company will expand the new energy testing business and increase mobile communication testing capabilities. After completion, the project will strengthen the environmental reliability testing of new energy vehicle components and vehicles, increase service capabilities such as mobile communication testing and electromagnetic compatibility testing. Along with the boom in downstream demand, the company has high growth potential; 3. As an important downstream application field of the company, the “14” demand will increase Performance provides stable support. At the same time, by raising capital to expand the aerospace product testing laboratory, the company also reached the expected state of use in the middle of this year, which will contribute new revenue points; 4. The company's two main businesses of test equipment manufacturing and testing services develop collaboratively, leading and promoting each other to help develop the downstream market. Furthermore, the company's overseas market layout, preparation of laboratories in Thailand, and provision of nearby services will contribute to new performance growth points.

Based on the above view, we expect the company's revenue for 2024-2026 to be 2,543 billion yuan, 3,673 billion yuan and 3,694 billion yuan respectively; net profit to mother will be 388 million yuan, 494 million yuan, and 608 million yuan respectively; EPS will be 0.76 yuan, 0.97 yuan, and 1.20 yuan respectively. Maintaining the “buy” rating, the target price is 18.00 yuan, corresponding to PE in 2024-2026, 23.68 times, 18.56 times, and 15.00 times, respectively.

Risk warning

Increased market competition has led to profit margins falling short of expectations, fund-raising projects falling short of expectations, market development falling short of expectations, etc.