Incident: The company announced results. In 2022, it achieved revenue of 0.209 billion billion yuan, net profit to mother of 0.074 billion yuan, +0.54% year on year; in Q1 2023, revenue of 0.057 billion yuan, +8.82% year on year, and net profit to mother 0.015 billion yuan, or -9.59% year on year.
Results in 2022 are under pressure due to the pandemic, and steady growth is expected in 2023.
In 2022, the company's production and operation work was affected by a sudden external economic environment. In particular, business activities basically stagnated in April and May, leading to a year-on-year decline in revenue. By business: ① inspection and testing services achieved revenue of 0.19 billion yuan, a year-on-year decrease of 6.2%; ② measurement services achieved revenue of 0.007 billion yuan, a year-on-year decrease of 10.3%; ③ professional technical services achieved revenue of 0.005 billion yuan, a year-on-year decrease of 5.6%. We determine that in the inspection and testing service business, the low-voltage cable inspection business may be greatly affected. The order cycle is short, the timeliness is high, and there is a lot of loss of orders due to business stagnation.
Q1 of 2023 also shows the increase in revenue contributed by Anhui Yusu, but the profit side still declined year-on-year. We judge that, on the one hand, the incremental profit contribution may be limited after Anhui Yusu excludes minority shareholders' rights; on the other hand, it may be irregular sales of waste materials, which are generally included in other businesses, contributing 100% to profit, causing profit fluctuations in the single quarter. Looking ahead to the whole year, the company's production and operation activities will return to normal. By the end of the first quarter, contract debt reached 0.039 billion yuan, +15% year over month, and orders in hand increased significantly. Considering that the Guangdong subsidiary is expected to be put into operation during the year, compounded by the combined contributions of Anhui Yutest, the company's performance is still expected to grow steadily throughout the year.
Profitability is relatively stable, and operating quality remains good: In 2022, the company's overall gross profit margin was 62.55%, which was basically the same year on year, and the net interest rate was 35.27%, +1.77pct year on year, mainly due to increased interest income. The company's cost ratio for the period was 24.25%, -1.69pct year on year. Among them, sales, management, R&D, and finance expenses rates were +0.04, +2.33, -0.7, and -3.36 pct, respectively. After the company went public, monetary capital increased significantly. While the company invested in fund-raising projects in an orderly manner and maintained high quality operating cash flow, it effectively increased interest income.
It is expected that both epitaxial and endogenous development will be achieved in the long term. ① Promote epitaxial mergers and acquisitions:
It successfully acquired Anhui Yusheng and began listing in 2023. The aim is to strengthen the company's layout in the field of special wire and cable testing. According to the annual report, the target achieved revenue of 0.025 billion billion and net profit of 0.014 billion in 2022. After completing the corporate reform, the business growth momentum was strong and the profit level was high. ② Self-built production capacity expansion: Develop test capacity building for ultra-high voltage cables and special cables to increase the production capacity of the company's ultra-high voltage cable pre-certification and testing services and add capacity. At the same time, the Guangdong subsidiary has completed laboratory construction, equipment procurement and installation, personnel recruitment and training, etc., and has obtained inspection and testing agency qualification (CMA) qualification.
It is expected to apply for and obtain laboratory accreditation (CNAS) certification in 2023, and be put into operation.
③ Actively expand the scope of business: According to the annual report, the company currently has business capabilities for testing, inspection, measurement, calibration and capability verification other than certification. In the future, the company will apply for certification business qualifications to complete the company's business scope as an inspection and inspection agency; improve engineering application technical service capabilities, set up engineering field service teams, and carry out special technical services such as completion acceptance and testing at engineering sites; and plans to expand product inspection capabilities other than cables through acquisitions, shareholding, and self-construction, and cultivate inspection capabilities in strategic emerging industries, such as liquid flow batteries and high-performance membranes for energy storage systems Testing and evaluation of materials, etc.
Investment advice:
We expect that in 2023-2025, the company's revenue will be 0.261, 0.32, and 0.383 billion yuan, respectively, up 25.0%, 22.8%, and 19.5% year-on-year increase, with net profit of 0.09, 0.115, and 0.143 billion yuan respectively, with corresponding PE being 31, 24, and 19X, respectively; taking into account the testing industry's potential for epitaxial expansion and the company's scarcity as a leader in the cable inspection industry, 35 times that of 2023 PE, corresponding to a 6-month target price of 52.5 yuan, maintains a buy-A investment rating.
Risk warning: Haifeng's new installed capacity falls short of expectations; investment in the power industry, including UHV and new grid systems, falls short of expectations; the construction progress of the company's fund-raising projects falls short of expectations; the development of new subsidiaries and acquisitions of subsidiaries falls short of expectations; and the expansion of emerging businesses falls short of expectations.