Incident: The company released its report for the third quarter of 2021 on October 21. The company achieved revenue of 1,296 billion yuan in the first three quarters of 2021, an increase of 24.89% over the same period, and achieved net profit of 53.304 million yuan to the mother, a year-on-year decrease of 60.33%.

Results for the first three quarters of 2021 were briefly pressured, and growth continued over the long term. In the first three quarters of 2021, the company achieved revenue of 1,296 million yuan, an increase of 24.89%; achieved net profit of 53.304 million yuan, a year-on-year decrease of 60.33%; of these, Q3 achieved revenue of 454 million yuan in a single quarter, an increase of 7.48%, and achieved net profit of 6015 million yuan, a year-on-year decline of 98.77%. The short-term pressure on performance was mainly due to several eventual reasons: (1) Revenue and production capacity relocation continued until mid-late August, and the power restriction policy limited the supply of some raw materials. Production efficiency has declined. Furthermore, the pandemic has caused delays in delivery, and the appreciation of the RMB is not conducive to the settlement of the company's overseas sales. (2) Cost side: Cost increases for some key materials and plant leasing costs increased year-on-year after the company moved to Dongguan to expand production area. In addition, changes in product structure, such as an increase in the proportion of “two customers and one risk” products, caused the company's comprehensive gross margin to drop by 7.48 pct to 37.36%. (3) Cost side: Taking long-term development as the starting point, the company increased investment in R&D and sales. Sales/management/finance expenses were 157./ 1.08/ -0.05 billion yuan respectively, with year-on-year changes of +26.59%/34.93%/-258.96%, respectively. Among them, the sharp reduction in financial expenses was mainly due to a reduction in exchange losses. The company hired about 500 additional people in R&D and 150 additional people in sales to strategically reserve the market for future development, thereby increasing the corresponding costs. The total of the three rates was 20.04%, an increase of only 0.1 pct over the same period. Fee control was relatively stable. Although the company's performance is temporarily under pressure due to the macro environment or events, the company's actions such as increasing R&D investment and sales investment will lay the foundation for long-term development.

Raw materials are strategically stored, and inventories are growing. The company's inventory for the first three quarters of 2021 was 584 million yuan, an increase of 162.91% over the previous year. Mainly, in the face of the continuing adverse effects that trade conflicts, COVID-19, technical barriers, etc. may have on the global raw material supply system, the company carried out active supply chain management, rationally regulated inventories, and made strategic reserves for raw materials, thus effectively ensuring that production and operation activities in the first three quarters were affected by the lack of core.

Cooperate strategically with Horizon Robotics to conduct deep collaboration in the field of commercial vehicle intelligence. On August 27, 2021, the company signed a “Strategic Cooperation Framework Agreement” with Beijing Horizon Robotics Technology R&D Co., Ltd. The company will rely on its leading technology and development experience in the field of commercial vehicle safety and information technology, while Beijing Horizon Robotics Technology R&D Co., Ltd. will rely on its technology and products in the field of artificial intelligence chips to carry out technical cooperation focusing on ADAS and autonomous driving, and jointly release 360 surround view and blind spot monitoring and warning systems and front-view ADAS cameras for commercial vehicles based on the Horizon Rising Sun 3 chip Product Solution Investment Proposal: As the company continues to consolidate its leading position in the bus, passenger and risk, rental and muck environmental protection industries, but is also affected by the epidemic, price increases of upstream raw materials, electricity restrictions, etc., net profit for 2021-2023 is expected to be 237 million, 344 million yuan, and 436 million yuan respectively. EPS is 1.37 million, 1.98, 2.52 yuan/share, and PE is 26X/18X/14X respectively.

Risk warning: trade frictions escalate, market competition intensifies, technological development falls short of expectations, project completion falls short of expectations, policy implementation falls short of expectations, upstream price increases, power restrictions affect production risks, macroeconomic risks