Description of the event
Radio and Television Measurement released its 2024 quarterly report. The company achieved revenue of 588 million yuan, an increase of 7.82% over the previous year; net profit due to mother of 1.2 million yuan (-2.62 million yuan in the same period last year) turned a loss into a profit; net profit of 6.06 million yuan (-9.8 million yuan in the same period last year), achieving a loss reduction of 3.74 million yuan.
Incident comments
Revenue growth has slowed under the 2024Q1 High Basis+Shrinking Losses Laboratory Strategy. 2024Q1 revenue increased 7.82% year over year, mainly due to: 1) high base: due to the macro background, some 2022 orders were delayed until 2023Q1 to confirm revenue; 2) shrinkage loss laboratory: In 2024, the company implemented a loss reduction laboratory strategy for weak businesses such as food testing and ecological environment testing. The apparent revenue growth rate of the corresponding business declined, but it contributed to the profit side. Looking ahead to 2024, the dominant sector has good development potential, and the weak sector has appropriately contracted to form a positive performance contribution: based on 2023 revenue, 1) measurement calibration/integrated circuit growth rate of 18.8%/34.2%, which is expected to maintain good growth this year with the expansion of measurement capacity and the recovery of consumer electronics demand; 2) Reliability and environmental testing/electromagnetic compatibility will slow to 8.2%/11.3% due to special events in the military industry. 3) The food testing/ecological environment testing/EHS sector accounts for a relatively high share of government customers. Due to local financial pressure, the revenue growth rate fell to -14.5%/-9.6%/-10.8%. In 2024, the Food and Environmental Loss Laboratory adopted a contraction strategy. The scale of revenue declined but contributed positively to profits.
The net interest rate of 2024Q1 increased by 1.02 pct year on year, and high-quality development is beginning to bear fruit. 1) Gross profit margin: The gross profit margin of the 2024Q1 company was 38.7%, up 2.95pct year on year. The gross margin of the food/environmental inspection business in 2023 was 24.7%/23.6%, and the gross margin of all other sectors was between 40%-51%. Starting in 2024, the contraction of the food/environmental testing business, integrated management and business structure transformation with chemical analysis business had a positive impact on the company's overall gross margin increase; 2) Expense ratio: The cost ratio of the 2024Q1 company increased 2.75 pcts to 40.7% year on year, sales/management/ The R&D/finance cost ratio was +0.56pct/+0.34pct/+2.71pct/-0.86pct. The R&D cost rate increased a lot, mainly because starting 2024, the company used “innovation” to add momentum to development, increase investment in technological innovation, and deeply cultivate emerging strategic industries such as drones, new energy, new materials, and high-end equipment to create new business growth points to protect the company's long-term performance growth. Since the company's new leadership team took office at the end of 2023, it has promoted refined management in various areas such as improving organizational structure efficiency, profit assessment orientation, high-end business development, improving financial management, and reducing technological costs and increasing efficiency, and the results have initially been realized.
2023Q1 has a high cash flow base, and the 2024Q1 cash flow situation has improved compared to 2022/Q1 and before. Q1 is usually a low repayment season. Last year, Q1 formed a high base of 43 million yuan due to the pace of order delivery. 2024Q1's net operating cash flow of 0.04 billion yuan improved from -0.88 billion yuan/-60 million yuan/-68 million yuan in 2020Q1/2021/Q1. The second half of the year was usually the peak of repayment.
A draft equity incentive has been introduced, and management reforms are underway. A draft equity incentive was issued in October 2023; the chairman/general manager/director secretary was replaced in December 2023, and the new management team plans to “focus on quality and efficiency, comprehensively implement refined management to vigorously promote cost reduction and efficiency” and “establish a profit-centered assessment model” in 2024.
Profit forecast and valuation: It is estimated that in 2024-2026, the company's revenue will be 3.325 billion yuan/3.806 billion yuan/4.363 billion yuan, up 15.1%/14.5%/14.6% year on year; net profit due to mother will be 323 million yuan/423 million yuan/538 million yuan, up 61.9%/31.0%/27.1% year over year, corresponding to PE valuation of 28.6x/21.9x/17.2x; maintaining the “buy” rating.
Risk warning
1. Ecological environment and food testing losses fall short of the expected risk; 2. The net interest rate falls short of the expected risk due to insufficient capacity utilization.