It is expected that the performance will increase by 20% and 40% in 2019.

The company issued a performance forecast for 2019, which is expected to achieve a net profit of RMB1.54-179 million, which is in line with expectations, and income growth leads to sustained and steady growth.

Testing leader of high and low voltage electrical appliances, steady growth of revenue performance

The Academy of Electrical Sciences is mainly engaged in testing business in the fields of high-voltage electrical appliances, low-voltage electrical appliances, environment, etc., among which, 1) the income of high-voltage electrical appliances testing accounts for more than 75%, and the qualification barriers, asset barriers and technical barriers of the high-voltage electrical appliances testing industry are high. The company is the absolute leader in this field. According to the data of the China Commission of Accreditation and Supervision, the market size of electronic and electrical testing in China is about 13.7 billion yuan in 2018, with an industry growth rate of more than 20% in the past three years. Thanks to the country's large-scale investment plans such as distribution network, smart grid and UHV, as well as favorable policies such as the 13th five-year Plan for power equipment, the company's high voltage testing business has increased from 256 million yuan in 2015 to 549 million yuan in 2018, with CAGR reaching 28.99%, far exceeding the growth rate of the industry. It is expected that the beneficiary business will maintain steady growth in nuclear power, photovoltaic and other new energy industries in the future. 2) low-voltage electrical equipment testing business belongs to the national compulsory product certification, all projects have national unified pricing, the industry entry threshold is low, market-oriented full competition, the company is the industry leader, business income remains robust, maintained at about 1-150 million yuan.

Projects under construction have been consolidated one after another, and the inflection point of performance is coming.

The electrical testing business of the Institute of Electrical Sciences is a heavy asset investment, accounting for more than 60% of the operating cost. The company has continued to increase its asset investment in recent years, most of the projects are expected to be completed in 20 years, and the company's depreciation expense will reach its peak in 21 years. Since then, as capital expenditure slows and enters the harvest period, performance flexibility is expected to be released.

Profit forecast and investment advice:

As the testing leader of high and low voltage electrical appliances, the company's short-term income performance has increased steadily. After 21 years, with the improvement of laboratory capacity utilization, the gradual downward performance elasticity of superimposed depreciation expenses is expected to be greatly released. We expect the 2019-21 year net profit to be 1.67 hundred and ninety-six hectare, corresponding to EPS0.22/0.26/0.32 yuan, PE 30-26-21 times. For the first time, coverage gives a "buy" rating.

Risk Tips:

Revenue fell short of expectations; the company's capacity utilization rate was not as high as expected; and credibility was affected.