中国检测：表现分化；估值要求不高

EquitiesCommercialServices&Supplies Performancediverged;valuation undemanding China ◆WeaknessinChina’sTIC industry continued,highlighted bythesluggishearnings resultsof listed testing companies Dun Wang*, CFA, CPA (Reg. No. S1700519060002)Analyst, A-share Industrials & Renewables ResearchHSBC Qianhai Securities Limiteddun.wang@hsbcqh.com.cn+86 21 5066 2027 ◆We prefer Centre Testing–its diversifiedbusiness deploymentcan help capture more growth oncetheindustry turns around Corey Chan* (Reg. No. S1700518100001)Head, A-share Industrials & Renewables ResearchHSBC Qianhai Securities Limitedcorey.chan@hsbcqh.com.cn+86 21 5066 2001 ◆LowerChina T&C International’s TP; CentreTesting’s TPunchanged; maintain Buy ratingson both * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and isnot registered/ qualified pursuant to FINRA regulations. A few bright spots amidaweak environment.In our reportChina Testing Sector–Revisiting our investment thesis during difficult times(1 December2023), we sawadifficult time for China’stesting, inspection, and certification(TIC)sector.Thedownturn, however, turned out to be longer than our previous expectation as itcontinued in 2024 and 1Q25.Only ten ofthe31listed testing companies in Chinarecorded earningsgrowthin 2024 (page4).In 2024, testing companies withexposure to grid equipment, autos,and other industrial equipment generallyoutperformed in net profit growth, while those with exposure toengineering andconstruction (E&C)and clinical testing all underperformed(clinical testing companiesmade losses); which we believe reflectdownstream sector prosperity. Prefer Centre Testing.Centre Testing (CTI)reported decent results in 2024butwasnot the bestamong its peers.While itmanaged to contain declinesin clinical andE&C business and increase the revenue ofmost ofitsotherbusiness lines,itstillsuffered fromanincrease in sales expense ratio, a decline ingovernmentsubsidies,and losses innewly acquired subsidiaries. However,we think these factors willsubside in 2025-26.Meanwhile, we keep our Buy rating onChina T&C Internationalaswe see potential earnings improvement foritsbusinessesacquired in 2022-24.We have not seen meaningful earningsincreasesforeither companysince 2022butwebelievetheir growthoutlookcould improve once China’sTICindustryimproves. Adjustestimates and TP for China T&C International and keepCTIestimatesunchanged; maintain Buyratings onboth.WelowerourTP for China T&CInternational to RMB8.90 (from RMB9.80) as we cut2025/26eearnings by17.4%/19.1%on weak results,andkeep our Buy rating.Maintain Buy onCTI(TP unchanged atRMB18.80). See company section for detailedvaluation and risks. Issuer of report:HSBC Qianhai Securities LimitedView HSBCQianhai Securitiesat:https://www.research.hsbc.com Disclosures & DisclaimerThis report must be read with thedisclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it. Valuation and risks Aglance at31A-share listed testing companies Selectivetesterstobenefit from downstream prosperity In our reportChina Testing Sector–Revisiting our investment thesis during difficult times(1December2023), we sawadifficult time for China’sTIC sector.Thedownturn, however, turnedout to belongerthanwe had expected, asit continued into2024 and 1Q25.As shown inExhibit2, in2024,onlyten ofthe31listed testing companies in Chinarecordedearningsgrowth.In addition,12of the31listedplayersrecorded losses in 2024. Theimprovement in 1Q25 is notparticularlystrong, as only16ofthe31listed testing companiesbooked positive revenue growthy-o-y. In 2024, testing companies with exposure togrid equipment, autos,and other industrialequipment generally outperformed in net profit growth, while thosewithexposureto E&Candclinical testing all underperformed.We believe this is a reflection of downstream prosperity.Welist someof the testing companieswith net profit growthin 2024below: ◆Guangzhou Metrology(002967 CH, notrated)reported 76.6% y-o-y net profit growth in2024, which according to its annual report, was driven bythe development of electronicproduct testing, defence testing, and other industrial testing (such as machinery, material,and grid). The companynoted itsinternaloperational efficiencyalso improved in 2024. ◆China Leon(1586 HK, not rated)reported 3.3% y-o-y net profit growth in 2024,benefitedfromcommodity upcycle and overseasexpansion, as per its annual report. ◆Testing companies related to grid equipmenttesting:Suzhou Electrical Apparatus(300215CH, notrated),Shanghai National Center of Testing and Inspectionfor Electric Cable andWire(301289 CH, notrated),andKETOP Testing Research(003008CH, notrated) allshowed positive performance in 2024whenChina grid equipmentshowed soliddemandand innovation. ◆Testing companies related toEVupcycletheme:Emtek(300938CH, notrated)andChinaAutomotive Engineering Research(601965CH, not rated)both reported positive net profitgrowth in 2024 amidnew EV models research a