Incidents:
The company released its report for the third quarter of 2023. 2023Q1-3 achieved revenue of 1,758 million yuan, -34.44%, net profit of 105 million yuan, -41.69%; Q3 achieved revenue of 571 million yuan, -42.78% year-on-year, and net profit of 12 million yuan, -86.63% year-on-year. 2023Q3 performance fell short of expectations. According to the company's announcement, the decline in operating income is mainly due to the current decline in demand for the company's infectious medical testing related business.
Company reviews:
The gross margin for the third quarter was higher than the same period last year. The 2023Q3 gross margin was 42.1%, +7.3pct yoy, -5.3pct; the gross margin for the first three quarters was 43.69%, +8.85pct yoy. We believe that the increase in gross margin is mainly due to changes in the business structure. The share of revenue from the medical infection business, which has low profitability, has declined, and the scale effect is initially apparent.
Net interest rates are under pressure in the short term, taking into account large credit impairments and asset disposal. The net interest rate for 2023Q3 was 2.11%, -6.91 pct year-on-year. The fee rate for the 2023Q3 period was 36.65%, +10.65pct year-on-year. Among them: 1) sales expense ratio is 16.32%, year over year +6.11pct; 2) management expense ratio is 13.39%, year over year +5.52 pct; 3) R&D expense ratio is 6.92%, year over year -0.84 pct; 4) financial expense ratio is 0.02%, year over year -0.15 pct. The fee rate for the first three quarters was 35.25%, +10.25pct year-on-year. Among them: 1) sales expense ratio is 15.67%, year-on-year +5.29pct; 2) management expense ratio is 11.61%, year-on-year +4.05pct; 3) R&D expense ratio is 8.08%, year-on-year +1.23pct; financial expense ratio -0.11%, year-on-year -0.32pct, mainly due to a decrease in current loan size and an increase in bank deposit interest income. 2023Q1-3 calculated credit impairment losses of 32 million yuan and asset disposal income of -14 million yuan, which affected the company's short-term profit margin level.
Endogenesis and epitaxial go hand in hand, strengthen the national sales network, and achieve rapid laboratory expansion. 1) The company's important Xi'an laboratory base has been put into operation, effectively expanding comprehensive testing production capacity such as special industry and civil environment reliability tests, special industry and civilian electromagnetic compatibility EMC tests, etc., to maintain business advantages in the northwest region and promote business expansion across the country; 2) The acquisition of Hubei Zhongjia Synthetic Pharmaceutical Co., Ltd. has further expanded the scope of Prugni Biopharmaceuticals business, and has the ability to undertake the production of chemical compounds, clinical GMP production of innovative drugs, and the launch of generic pharmaceutical plants. 3) The acquisition of Heber Testing Technology (Shanghai) Co., Ltd. and Jilin Titanium Calibration and Testing Co., Ltd. can independently carry out external calibration business, involving the scope of projects in the fields of mechanics, chemistry, thermal engineering and geometric quantity. This acquisition has further expanded the Group's metrology field and laid the layout of the company's metrology business in North China and East China.
Lower the profit forecast and maintain the “buy” rating. Considering the decline in demand for the company's infectious medical testing related business and the risk of impairment, we lowered the company's profit forecast. It is estimated that the company's net profit for 2023-2025 will be 2.66/3.97/530 million yuan, respectively (previous value was 3.80/500/653 million yuan), and the current stock price (2023/11/03) corresponding to PE is 28/18/14x, respectively. Considering that the testing laboratory has a profit improvement cycle, along with the gradual increase in production and the impact of impairment gradually becomes clear, profitability is expected to increase. The company's response to PEG is 0.67. Comparable companies (Huazui Testing, Radio and Television Metering, which are all national and comprehensive independent third-party testing service agencies) PEG=0.95 still have a lot of room for improvement, so they maintain a “buy” rating.
Risk warning: credibility and brand are affected by adverse events; risk of increased market competition; risk of investment falling short of expectations.