Summary of events: on October 24, 2022, the company released the third quarterly report of 2022. 2022Q3 realized operating income of 236 million yuan, + 8.78% year-on-year, and net profit of 14.6684 million yuan,-2.64% year-on-year.

The company's performance is in line with expectations, and high R & D investment supports the strategic transformation. The company's revenue in the first three quarters was 631 million yuan, + 5.73% compared with the same period last year, of which Q3 realized operating income of 236 million yuan, + 8.78% compared with the same period last year, mainly due to the gradual relief of superimposed policy stimulus from the epidemic situation and the gradual recovery of demand. the automobile market has maintained a rapid growth trend since June, with 19.47 million cars sold from January to September 2022 (+ 4.4% compared with the same period last year), driving the company's revenue growth. The net profit was 40 million yuan, + 2.34% compared with the same period last year, of which Q3 achieved a net profit of 14.6684 million yuan,-2.64% compared with the same period last year. The main reason is that the company continues to increase investment in research and development and increases investment in fixed assets, resulting in short-term pressure on net profit. 22Q3's gross profit margin / net profit rate is 11.51% 6.06%, respectively, year-on-year + 0.19Pcts/-1.04Pcts. The three-fee rate of 22Q3 is 2.86%, year-on-year + 0.41Pcts, and the rates of sales, management, R & D and financial expenses are 0.93%, 2.62%, 3.94% and-0.69% respectively, compared with the same period of last year + 0.24Pcts/+0.03Pcts/+1.50Pcts/+0.14Pcts. Among them, the R & D expenditure of 22Q3 Company is 9.2962 million yuan, a year-on-year increase of 75.92%, mainly due to the company's increased investment in R & D. Due to the increase in the salary of R & D personnel, R & D materials and technology investment. The company's increased R & D investment and high R & D investment provide strong support for the company to build a new generation of automotive intelligent cockpit electronic product system. At the same time, the company's active expansion of production capacity will help the company to realize the strategic transformation to Tier1 and open up new growth space.

In-depth layout of the upper reaches of the industrial chain to consolidate the company's core competitiveness. Accelerate the transformation of Tier1 and drive the company's sustained high growth. Under the trend of cockpit core screen separation, the company's products are being upgraded from simple modules to complex modules, and the value of products per car is upgraded from several hundred yuan to 2-3 thousand yuan. At the same time, the complex module has high added value and high profit space, which further opens the room for the growth of the company. In order to seize the opportunity of industry change, the company deeply laid out the upper reaches of the industry and announced on October 29, 2021 and August 13, 2022, respectively, establishing subsidiaries with BOE Jingdian and Shenzhen Tianma, both of which are domestic vehicle screen head enterprises, deeply bundling upstream raw material resources is conducive to building the company's core competitiveness of Tier1 position, and is expected to accelerate the company's car screen market share to continue to rise. The transformation from Tier2 to Tier1 accelerates the company's continuous acquisition of on-hand orders. At present, the company has been designated by a number of mainstream car factories for new projects. According to the company announcement, as of August 5, 2022, the company has accumulated about 10.408 billion yuan of unpaid projects from domestic mainstream system integrators and mainframe factories, with abundant orders on hand. In order to meet the demand of the current hand-ordered project, the company actively promotes the production line of Jiaxing and Nantong factories, among which, 155mu of self-built main plant is expected to be completed and put into use (will continue to expand the production line of intelligent module and screen display system, intelligent cockpit domain controller products and advanced auxiliary driving system, intelligent network connection terminal, etc.). The company has sufficient orders on hand, the production capacity is expanding steadily, and the profitability continues to rise, helping the company to further expand its revenue scale, and its performance is expected to usher in high growth.

Investment suggestion: we estimate that the return net profit of the company from 2022 to 2024 is 1.45 / 180 million yuan respectively, and the PE multiple corresponding to the current market capitalization is 41x/24x/19x. Be optimistic about the valuation switch brought about by the company's transition to Tier1, and maintain the "recommended" rating.

Risk tips: the risk of chip supply shortage; the intensification of industry competition leads to the reduction of gross profit margin and so on.