The 38% increase in performance is in line with expectations, and the main automotive inspection industry is growing at an impressive rate. In 2023, the company achieved operating income of 680 million yuan, an increase of 25%; achieved net profit of 160 million yuan, an increase of 38%; after deducting non-performance, the growth rate was in line with expectations. The increase in revenue was significantly faster than the increase in gross margin and the decline in marketing and management rates. On a quarterly basis, Q1/Q2/Q3/Q4 achieved revenue of 1.5/1.8/1.8/170 million yuan, respectively, an increase of 31%/32%/20%/17%; the single quarter achieved net profit to mother of 0.3/0.5/0.5/0.3 billion yuan, respectively, an increase of 41%/49%/32%/32%. By business, automotive/electronic electrical/consumer goods/health and environmental testing achieved revenue of 2.7/1.6/0.4/0.4 billion yuan respectively, an increase of 31%/12%/11%/116%. The main automotive R&D and inspection business maintained relatively rapid growth; the main automotive R&D and testing equipment business achieved revenue of 160 million yuan, an increase of 30%.

Profit quality continues to be excellent, and per capita profit generation is growing steadily. In 2023, the company's comprehensive gross profit margin was 59%, up 2 pcts year on year. Among them, the gross margin of automobile inspection/electronic and electrical inspection/test equipment was 72%/59%/46%, respectively, up 1.5/0.8/2.5pct. The cost ratio for the period was 31.88%, down 2.7 pct year on year. Among them, the sales/management/ R&D/finance expenses ratio changed year-on-year by -1.1/-1.9/-0.4/+0.6pct, and the sales and management rates decreased significantly, which is expected mainly due to: 1) a decrease in the per capita remuneration of managers; 2) a year-on-year decrease in share payment expenses; 3) the per capita profit earning capacity of sales personnel increased significantly, mainly due to the year-on-year decline in interest income. Net profit margin was 24.07%, up 2.42pct year over year. The company's net operating cash flow inflow for the year was 205 million, an increase of 0.3 billion yuan over the previous year, with a net present ratio of 126%. The performance continued to be excellent. Looking at the per capita index, the total number of employees in the company reached 1,532 in 2023, an increase of 8%. Per capita income/profit per capita reached 44.3/107,000 yuan respectively, an increase of 58/ 23,000 yuan over the previous year. The per capita productivity index has been growing for three consecutive years.

Demand for automotive R&D and testing increased rapidly, and the expansion of production on booming racetracks accelerated growth. Benefiting from the increase in the penetration rate of new energy sources, car companies' R&D expenses are increasing year by year, and R&D testing demand continues to increase (we estimate the automotive R&D and inspection market size is about 32 billion dollars in 2022). The company has significant advantages in the field of component R&D and testing. It has been recognized by most OEMs such as SAIC, Ideal, and TESLA. It has high business barriers, strong customer stickiness, and continued to achieve high profitability. In the future, it is expected that the automotive inspection industry will maintain a high growth rate. In 2023, the company invested 545 million yuan in NEV laboratory expansion and military and civilian dual-use base construction: Of these, the NEV vehicle inspection project will invest a total of 260 million yuan, and vehicle inspection will expand production by about 22% after delivery; military testing plans to invest 290 million yuan, with an average annual revenue of 110 million yuan, accounting for 16% of 2023 revenue. The two major debt conversion projects are expected to increase the company's total production capacity by 42% after delivery. Looking at the field of production expansion, both new energy vehicles and military testing are booming tracks. Demand growth is highly certain, and currently the company has obtained military secrecy qualifications and has a foundation for business acceptance. In the future, with the gradual release of new production capacity, it is expected to help the company create new performance growth points.

Investment advice: We predict that the company's net profit for 2024-2026 will be 2.2/27/340 million yuan, an increase of 34%/25%/25% over the previous year, and the corresponding EPS will be 1.93/2.41/3.02 yuan, respectively. The current stock price is 18/14/11 times PE, respectively, maintaining a “buy” rating.

Risk warning: Risk of falling R&D investment by car companies, risk of production expansion projects falling short of expectations, etc.