Description of the event
The National Inspection Group released its 2023 annual report and 2024Q1 quarterly report. In 2023, the company achieved revenue of 2,660 billion yuan, up 9.59% year on year; net profit to mother was 257 million yuan, up 1.11% year on year. Earlier, Express reported revenue of 2,659 million yuan and net profit to mother of 256 million yuan. 2024Q1 achieved revenue of 459 million yuan, a year-on-year decrease of 2.09%; net profit due to mother - 0.27 million yuan, a year-on-year increase of 3.17 million yuan; deducted non-performance -- 34 million yuan, an increase of 4.55 million yuan over the previous year.
Incident comments
Demand in all sectors was relatively weak in 2023. By business sector: 1) Inspection and testing revenue was 1,811 billion yuan, up 3.80% year on year. Of these, engineering/materials/environment/food and agricultural inspection achieved an increase of 6.83%/4.47%/17.95%/4.26%, respectively, and the revenue share of the sector was 43.63%/21.96%/25.90%/8.51%, respectively. The engineering and materials sector continued to be hampered by the real estate industry. The execution of environmental soil orders fell short of expectations; 2) The growth rate of food and agriculture was relatively low due to downstream demand and local government financial pressure; 2) Testing instruments and Intelligent manufacturing revenue was 483 million yuan, up 30.18% year on year. Exploring metallurgy, cement and other industries outside the steel industry in 2023, Shanghai Minofu's order recovery was good in 2023 (revenue increased 37.00% year over year); 3) Research and technical services revenue was 200 million yuan, up 6.59% year on year; 4) certification services revenue was 102 million yuan, up 4.81% year on year; 5) Measurement and calibration service revenue was 59 million yuan, up 154.31% year on year. The increase was brought about by the end of April 2023, an increase of 154.31% year on year.
Net profit margin fell 0.71 pct year over year to 13.35% in 2023. 1) Gross profit margin: Increased by 0.42pct to 45.0% in 2023, gross margin of engineering/materials/environment/food agricultural testing changed year-on-year - 1.72pct/+0.07pct/+3.34pct/-4.44pct, overall inspection and testing service gross margin remained flat -0.30pct year on year. It is estimated that the unit price storage pressure for food and agricultural testing; certification services/testing instruments and intelligent manufacturing/measurement and calibration services/scientific research and technical services changed respectively -0.33pct/+4.08pct/+4.23pct/- 2.10pct. The difference in gross margin between different projects of intelligent manufacturing customized services, and the seasonality of national inspection and measurement revenue from new mergers and acquisitions had an impact on the gross margin of the measurement sector; 2) Expense ratio: The overall period cost ratio increased 0.11pct to 29.6% year on year, which is relatively stable; 3) Cash flow: Net cash flow from operating activities in 2023 was 286 million yuan, an increase of 3.40% year on year. The revenue ratio was basically flat, and cash flow improved.
Total target profit for 2024 increased 10.5% year-on-year, and Q1 operations were generally stable. Q1 revenue decreased 2.09% year on year, and net profit to mother increased by 3.17 million yuan year on year. Under seasonal influence, the company's Q1 net profit is usually negative. The company announced a target revenue of 2.90 billion yuan for this year, up 9.01% year on year; total profit of 440 million yuan, up 10.52% year on year.
It is proposed to publicly issue 800 million yuan of convertible bonds to supplement capital and optimize the structure. At the end of June 2022, the company announced that it plans to issue 800 million yuan of convertible bonds for Hunan Huake Laboratory, Hunan Company, Hebei Xiong'an Laboratory, carbon emission management platform construction and some acquisition projects to supplement capital to help the company's future development, while also optimizing the company's financial structure; it was approved by the Development and Review Committee on October 9, 2023.
Profit forecasting and valuation: We expect the company's “cross-regional+cross-sector” mergers and acquisitions to continue, demand in the real estate industry to pick up, and subsidiary profits to improve. The company's 2024-2026 revenue is expected to be 2,0/32.0/3.52 billion yuan, up 9.0%/10.5%/9.7% year on year; net profit to mother of 2.71/2.97/344 million yuan, up 5.5%/9.5%/15.8% year on year, corresponding to PE valuation of 22.8x/20.8x/18.0x. Give it an “gain” rating.
Risk warning
1. Reputation and brand risk of being affected by adverse events; 2. M&A decision risk and post-merger integration risk.