Centre Testing International Grp's preliminary 1H26 results are in line with expectations; Citi maintains Buy

Overview

This report reviews Citigroup's assessment of Centre Testing International Grp (300012.SZ)'s preliminary 1H26 results. The company expects 1H26 attributable net profit to grow 20%–22% YoY to Rmb561m–571m, with overall results in line with expectations. Citi maintains its Buy rating, believing that the recent share price decline of more than 20% over the past two months was mainly driven by market rotation from non-technology sectors into AI hardware, while the company's fundamentals continue to benefit from accelerating revenue growth in 2H26, expansion into new verticals, incremental M&A contributions and internationalization projects.

Core views

The core view is that 1H26 profit growth is in line with expectations, but the more important investment thesis lies in accelerating revenue growth in 2H26. The company's growth mix is shifting toward high-growth new verticals such as pharmaceuticals and medical devices, aerospace materials, chips, the low-altitude economy, PCB testing and NEVs. Management raised its 2026 revenue growth target to approximately 15% and increased the capital expenditure budget as a percentage of revenue, reflecting more proactive departmental budgets and sales commitments. AI applications are primarily contributing through improved operating efficiency and labor substitution, rather than generating large-scale AI or humanoid robot testing revenue directly at present.

Analysis framework

The report combines earnings tracking, management guidance, business-segment growth ranking and valuation cross-checking. The short-term analysis focuses on preliminary 1H26 profit, 2Q26 growth, non-operating gains and operating cash flow quality; the medium-term analysis examines the 2026 revenue target, capital expenditure, key verticals and AI-driven cost reduction and efficiency gains; valuation is based on a FY26E 33x PE to derive a Rmb24 target price, cross-checked against a DCF-derived fair value of Rmb25.

Methodology notes

• Valuation methodsPE Valuation

  FY26E 33x PE

  Citi's Rmb24 target price is based on FY26E 33x PE, which is 0.5 standard deviations below the historical average and reflects approximately 19% three-year EPS CAGR through 2027E.

• Valuation methodsDCF Valuation

  DCF Cross-check

  The DCF assumes an 8.5% cost of equity, a 3.0% after-tax cost of debt and a 2.0% terminal growth rate, producing a fair value of approximately Rmb25, close to the PE-based target price.

• Earnings AnalysisSegment Growth Driver Analysis

  Segment Growth Ranking

  Management ranks growth drivers with pharmaceuticals and healthcare as the fastest-growing segment, followed by industrial, consumer products and food, while the environmental business is relatively lagging.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 300012.SZ

  Covered company equity

  Strengths

  1H26 results are in line with expectations; 2026 revenue growth target was raised; pharmaceuticals and healthcare, industrial and consumer products and other new verticals are growing rapidly; AI applications should improve efficiency and reduce costs; operating cash flow and collection quality have improved.

  Weaknesses

  2Q26 profit growth was lower than 1Q26; the environmental business is relatively lagging due to the traditional nature of the business and the completion of a national soil assessment project; AI and humanoid robot testing businesses are currently limited in scale.

  Comparison

  The Rmb24 target price implies a 77.6% expected share price return from the current price of Rmb13.510; the DCF fair value of Rmb25 is close to the PE-based target price.

  Risks

  Adverse policy changes, a market downturn causing slower revenue growth, rapidly rising labor and rental costs, and failed M&A.

Key data

• 1H26 Attributable Net Profit GuidanceRmb561m–571mExpected to grow 20%–22% YoY.
• 2Q26 Attributable Net Profit GrowthApproximately 17% YoYEstimated based on the midpoint of guidance, below 1Q26's 31%, partly due to the low base in the same period last year and the impact of Chinese New Year seasonality.
• Non-operating GainsApproximately Rmb35mApproximately Rmb28m in the same period last year, providing a modest boost to net profit.
• 2026 Revenue Growth TargetApproximately 15%Raised by management from the previous 10% target following the 2025 results release.
• 2026E Capital Expenditure as a Percentage of Revenue9%–10%Previous guidance was 6%–7%.
• Target PriceRmb24.000Based on FY26E 33x PE.
• Current PriceRmb13.510As of 15:00 on July 8, 2026.
• Expected Total Return79.1%Includes a 77.6% expected share price return and a 1.4% expected dividend yield.
• Market CapitalizationRmb22,735m / US$3,359mBased on the disclosure convention in the report table.

Impact & implications

If management achieves its 15% 2026 revenue growth target, market confidence in the company's expansion from traditional testing services into high-growth verticals may strengthen. The application of AI in testing processes should help reduce labor costs, one of the largest cost items, while improving operating efficiency and margin elasticity. However, AI- and humanoid robot-related testing services remain at a small scale, and should not be regarded as major revenue drivers in the short term.

Risks

• Adverse policy changes may affect demand for testing and certification or the industry's regulatory environment.
• A market downturn or contraction in demand could cause revenue growth to fall short of expectations.
• Rapid increases in labor and rental costs could compress margins.
• Failed M&A integration or execution could weaken growth contributions.
• Current opportunities in AI- and humanoid robot-related testing are limited in scale, and overly high market expectations could cause valuation volatility.

What to watch

• Whether 2H26 revenue growth accelerates from 1H26.
• Progress toward achieving the approximately 15% 2026 revenue growth target.
• The actual growth ranking of the pharmaceuticals and healthcare, industrial, consumer products, food and environmental segments.
• The return on investment and capacity utilization after capital expenditure as a percentage of revenue rises to 9%–10%.
• The effectiveness of AI visual inspection and report generation in reducing costs and improving efficiency.
• Whether new testing scenarios such as humanoid robot joint motion testing expand beyond small-scale opportunities.