Key points of investment:

The company released its 2024 mid-year report, and the results were in line with expectations. 2024H1 achieved revenue of 1.34 billion yuan, yoy +9.2%; net profit to mother 0.08 billion yuan, yoy +32.5%. Among them, 24Q2 revenue was 0.76 billion yuan, yoy +10.2%, net profit to mother 0.08 billion, yoy +25%. It was at the center of previous forecasts, and the results were in line with expectations.

By product: 24H1 integrated circuits are growing rapidly, and life science profits are gradually improving. In the first half of 2024, ① measurement services: revenue 0.34 billion, yoy +3.35%, gross profit margin 46.08%, yoy-1.46pct. The measurement business continues to strengthen market expansion and maintain steady growth in business volume in the face of increased market competition; however, due to factors such as the relocation of the Guangzhou headquarters base, output value has lagged behind. ② Reliability and environmental testing: revenue 0.32 billion, yoy +5.38%, gross profit margin 44.47%, yoy -1.22pct. Business in special industries has resumed growth, and breakthroughs have been made in order development, but the relatively long contract execution cycle has affected some production values lagging behind; the automotive new energy business is developing rapidly. ③ Integrated circuit testing and analysis: revenue 0.11 billion, yoy +39.80%, gross profit margin 48.05%, yoy +2.66pct. Major customer development results have been remarkable, and special security services for the Beidou satellite navigation product supply chain have continued to break through. ④ Electromagnetic compatibility testing: revenue 0.15 billion, yoy +7.95%, gross profit margin 45.79%, yoy -2.21pct. In the face of increased market competition, business volume has maintained steady growth. Airborne business orders have grown rapidly, and a new national CMA qualification for medical device registration and inspection has been obtained. ⑤ Life sciences: revenue 0.23 billion, yoy +7.79%, gross profit margin 39.52%, yoy +9.55pct. The development of major ecological and environmental business projects has achieved positive results, and the food testing business has won bids for many provincial and municipal food sampling projects. The company closed some food testing and ecological environment testing laboratories to strengthen the rectification and optimization of shortcoming businesses. ⑥ EHS evaluation service: revenue 0.05 billion, yoy -2.42%, gross profit margin 0.49%, yoy -16.92pct. ⑦ Other: Revenue 0.15 billion, yoy +23.24%.

The company focuses on a profit-centered business strategy to improve operational efficiency, strengthen shortcomings, and increase gross profit margin and net interest rate.

24H1's gross profit margin was 41.9%, +0.3 pct year over year. 24H1 net profit margin was 5.9%, +1.0pct year over year. Net profit margin for 24Q2 was 10.4%, +1.2pct year over year. The cost rate for the 24H1 period was 36.1%, -1.3 pct year-on-year. Among them: 1) sales expense ratio 16.8%, -0.1 pct year on year; 2) management cost ratio: 7.7%, -0.1 pct year on year; 3) R&D cost ratio:

11.3%, -0.7 pct year on year; 4) Financial expense ratio: 0.3%, -0.4 pct year on year.

Maintain profit forecasts and maintain a “buy” rating. The company's equity incentives were introduced, and the company's operating efficiency was at an inflection point. We maintain our profit forecast. We expect the company's net profit to be 0.297/0.397/0.53 billion yuan in 2024-2026, respectively. The current stock price (2024/08/22) corresponds to PE 23/17/13 times, respectively, to maintain a “buy” rating.

Risk warning: Testing the industry's poor innovation ability and brand competitiveness, risk of changes in policies and industry standards, increased risk of market competition, risk of asset impairment, etc.