It is a leading domestic construction materials inspection leader, and diversified business development has opened up new growth. The company is a state-owned inspection and testing leader. In recent years, it has actively carried out a series of mergers and acquisitions around a “cross-sector and cross-region” strategy. It has now formed five comprehensive business platforms, including inspection and testing, certification, testing instruments, intelligent manufacturing, measurement and calibration, scientific research and technical services. The share of construction and building materials inspection revenue has declined with the volume of new businesses such as environmental testing, and the business landscape has developed comprehensively. As endogenous outreach continued to advance in recent years, the company's revenue continued to grow. Revenue in '23 increased 9.59% year on year to 2.66 billion yuan. Against the backdrop of a slowdown in domestic economic growth, etc., the company's performance was under phased pressure. The company's net profit returned to mother +1.11% year-on-year to 257 million yuan in '23.
Testing industry: high-quality track with heavy snow on long slopes, market-based and intensive development. The testing industry is a product of specialized division of labor, providing product credit enhancement services to meet the needs of government testing and commercial endorsements. With the continuous development of China's economy and society, on the one hand, the increase in total GDP corresponds to an increase in factor circulation. On the other hand, with the improvement of residents' living standards and the transformation and upgrading of the manufacturing industry, the granularity of demand for inspection and testing will also be further refined, and the testing industry is expected to achieve sustainable growth. The market size of China's inspection and testing industry is 427.584 billion yuan in 2022, and it is expected to maintain “GDP+” growth in the future. The process of marketization and intensification of the inspection and testing industry continues to advance, and the share of third-party testing institutions is expected to continue to increase. In 2022, there will be about 39,800 enterprise inspection and testing institutions in China, accounting for a year-on-year increase of 2.27pct to 75.51%.
Diversified layout is not afraid of cycle fluctuations to welcome new growth:
Engineering inspection: The structure continues to be optimized, and the stock housing inspection business layout continues to advance. In terms of engineering inspection, China's real estate industry has entered the inventory era. According to the Guangdong Institute of Architectural Design and Research, the area of residential housing over 20 billion square meters in China is over 20 billion square meters, and demand for stock housing testing has also increased, and demand for stock housing testing is expected to be released steadily with policy support.
The company actively lays out the stock housing inspection market with advantages such as laboratory layout and technology. In '22, the company's revenue related to stock housing testing exceeded 100 million yuan, and the stock housing inspection business of various member units in the 23H1 engineering business field increased by 10-20%. In addition, the company has also accelerated expansion into infrastructure construction such as rail transit and water conservancy, calming the impact of cyclical fluctuations in the real estate industry and achieving good results.
Dual carbon business: The market construction continues to improve and the space is broad, and the company's qualifications, customers, technology and other advantages are outstanding. In the context of dual carbon, the importance of carbon trading as an effective means of promoting carbon emission reduction continues to be highlighted. China's carbon trading market consists of two parts: quota transactions (CEA) and voluntary emission reduction transactions (CCER). Among them, CCER suspended approval in March 2017 and restarted in January 2024, providing new options for enterprises to achieve carbon emission quota settlement and compliance at low cost. Judging from the market operation, China's carbon trading market continues to expand, and the carbon pricing mechanism is gradually maturing. By the end of '23, the cumulative turnover of the national carbon emissions trading market reached 440 million tons, with a turnover of about 24.9 billion yuan. Fulfilment volume and carbon prices were in an upward range, and the industry space continued to expand. Since entering the carbon market in 2009, the company has obtained various domestic and international qualifications such as CDM and VCS. In recent years, it has invested nearly 100 million yuan per year in the dual-carbon field, continuously improving the level of technology research and development. The company has participated in many national key R&D projects and has provided related services to thousands of enterprises, and has rich industry experience.
Environmental testing: Soil Sanpu is of great significance, and the company may fully benefit. According to the “Third National Soil Survey Work Plan”, the purpose of the three soil surveys is to comprehensively investigate soil types and distribution patterns in China, which is of great significance in improving the level of soil resource protection and utilization. Soil testing has high professional barriers, and laboratories undertaking the third national soil survey must meet strict requirements in terms of qualifications, personnel, equipment and facilities. The company has comprehensive soil physico-chemical index testing capabilities and advanced equipment. As of the 2023 interim report, the company has a total of 14 laboratories selected as the State Council's “Three Top Soil Testing Laboratories”. As of November 2023, the company's Soil Sanpu business has achieved a contract amount of about 150 million yuan. It is expected to bring in annual revenue of more than 100 million yuan from 2023 to 2024, which will significantly drive the company's performance growth.
Investment advice: We expect the company's net profit to be 3.05, 3.56, and 372 million yuan in 24-26, respectively, and the corresponding PE is 17.4/14.9/14.3 times, respectively. The company is a leading state-owned construction engineering and building materials inspection enterprise. Through an active merger and acquisition strategy, the company is expected to usher in new growth in the fields of engineering inspection, dual-carbon business, and environmental inspection. First coverage with a “Recommended” rating.
Risk warning: Risk of fluctuations in downstream demand, risk of damage to credibility and reputation, risk of weakening management capacity.