Economic and social development has led to an expansion in demand for testing services, the policy side is gradually liberalizing the scope of third-party testing services, and the logic of sustainable industry growth continues to be interpreted.
The Zhitong Finance App learned that Fangzheng Securities released a research report saying that economic and social development has led to an expansion in demand for testing services, the policy side is gradually liberalizing the scope of third-party testing services, and the logic of sustainable industry growth continues to be interpreted. The bank said that fields such as medicine and medical devices, defense related, electronics and electrical appliances have maintained a high boom in recent years, and the low-altitude economy is expected to contribute to new growth. The low-altitude economy is an iconic new type of productivity, and the market space is vast. Currently, infrastructure such as the low-altitude economy and supporting airworthiness systems is still under construction, and relevant international/national/local/industry standards may be introduced one after another. As various new products enter the R&D and certification stage, the intensity of demand for inspection, testing and verification may increase significantly.
Investment suggestions: It is recommended to focus on Huazu Testing (300012.SZ), a leader in third-party testing and certification services; Sutest Testing (300416.SZ), a leading enterprise in the field of environmental testing; Radio and Television Metrology (002967.SZ); and Peony Testing (300887.SZ), a leading third-party comprehensive testing company.
Fangzheng Securities's views are as follows:
Testing industry: Providing product trust enhancement to support high-quality economic development. The business structure of the third-party testing industry (TIC) includes testing, inspection and approval, providing product credit enhancement services to meet the needs of government testing and commercial endorsements, throughout all aspects of product development, production and distribution. The core competitive elements of the testing industry are certification qualifications, credibility, and management ability. According to the upstream and downstream nature of the industry, inspection and testing services can be divided into physical testing and chemical testing. The two have large differences in service radius, cost characteristics, customer characteristics, downstream customers, etc., and also correspond to different business models.
Economic and social development has led to an expansion in demand for testing services, the policy side is gradually liberalizing the scope of third-party testing services, and the logic of sustainable industry growth continues to be interpreted. There are many downstream segments of the testing industry, and the growth rate of the industry is related to the macroeconomy. With the continuous development of China's economy and society, on the one hand, the increase in total GDP corresponds to an increase in factor circulation. On the other hand, with the improvement of residents' living standards and the transformation and upgrading of the manufacturing industry, the granularity of demand for inspection and testing will also be further refined, and the testing industry is expected to achieve sustainable growth. The market size of China's inspection and testing industry is 427.584 billion yuan in 2022, and it is expected to maintain “GDP+” growth in the future.
Supply pattern: The process of marketization and intensification of the testing industry continues to advance. From a structural point of view, the process of marketization and intensification of the inspection and testing industry continues to advance, and the share of third-party testing institutions is expected to continue to increase. In 2022, there will be about 39,800 enterprise inspection and testing institutions in China, accounting for a year-on-year increase of 2.27pct to 75.51%. The testing industry is scattered. It is still showing “weak, small, and scattered” characteristics in recent years, and it is expected that it will gradually become concentrated in the future.
The fields of medicine, medical devices, defense, electronics, etc. have maintained a high boom in recent years, and the low-altitude economy is expected to contribute to new growth. Traditional fields such as construction materials (24.5%), environmental monitoring (10.2%), and motor vehicle inspection (7.2%) are large, while medicine, medical equipment, national defense, electronics, etc. have maintained a high boom in recent years. The low-altitude economy is an iconic new type of productivity, and the market space is vast. Currently, infrastructure such as the low-altitude economy and supporting airworthiness systems is still under construction, and relevant international/national/local/industry standards may be introduced one after another. As various new products enter the R&D and certification stage, the intensity of demand for inspection, testing and verification may increase significantly.
In recent years, representative enterprises have maintained a high proportion of capital expenditure, and the revenue side may continue to grow. Labor efficiency and input-output ratios are divided, and positive development is a long-term trend. In recent years, representative companies such as Huazue Testing and Soviet Testing have maintained a high proportion of capital expenditure, and future revenue growth can be expected. There is a certain differentiation between revenue generation/profit generation per capita of representative enterprises and revenue generation/profit generation per unit of equipment. It is expected to gradually grow as downstream demand picks up and the company's refined management capabilities improve.
Risk warning: Risk of fluctuations in downstream demand, risk of damage to credibility and reputation, risk of weakening management capacity.