External factors are disrupted, and the company's net profit is under pressure in the short term. According to the company's three-quarter report, the company's revenue for the first three quarters of 2022 was 1,656 million yuan, an increase of 5.2% over the previous year, and the net profit of the mother was -74 million yuan, turning negative year on year (same period last year: 12 million yuan). We judge that the short-term pressure on the company's performance was mainly affected by factors such as increased supply chain costs, customer refunds falling short of expectations, external factors affecting project delivery progress and reduced government subsidies. In the long run, we are optimistic that the company will focus on transportation, public security and other markets and achieve continuous breakthroughs. Considering the fluctuation in the company's project delivery schedule in the short term, we expect the company's net profit from 2022 to 2024 to be 0.11/124/209 million yuan. Comparable to the company's 2023 Wind forecast, the average PE value is 47x. Considering that the company's transportation business and public security business are expected to achieve continuous breakthroughs, the company was given 57xPE in 2023, with a target price of 4.05 yuan, maintaining the “increase in holdings” rating.

3Q22 Gross margin improved month-on-month; cost side control was good

The company's comprehensive gross margin for the first three quarters of 2022 was 26.7%, down 0.8pct from the previous year; among them, the Q3 single-quarter composite gross margin was 28.6%, down 0.3 pct from the previous year and up 1.6 pct from the previous month. Expense control is good. The company's total expense ratio for the first three quarters of 2022 was 30.2%, down 3.6 pct from the previous year. Among them, the sales/management/R&D/financial expenses ratio was 10.3%/7.7%/14.0%/-1.8%, respectively, and -1.6/-0.9/-1.5/+0.4pct respectively. The company accrued asset impairment losses of 27 million yuan in the first three quarters, an increase of 51.8% over the previous year, or due to the company's calculation of some inventory price reduction preparations and contract performance costs; the first three quarters accrued a credit impairment loss of 25 million yuan, a significant increase over the same period last year (110,000 yuan), or an expected increase in credit loss accrual due to delays in the company's collection.

A leading IoT service provider for smart cities, focusing on the continuous growth of the transport+public security market, the company strives to become a leading global smart city IoT product and service provider. By building an IoT big data application industry cluster, it is expected to focus on the Internet of Vehicles and the two major tracks of smart transportation and public safety in the future. In terms of the transportation market, the company is expected to benefit from the rapid growth of electronic license plates, road collaboration products, car-side products and other businesses. According to the company's 22-year report, the company's electronic license plate share remains the leading domestic market, and related projects have been implemented in nearly 20 cities in China; the public security market is expected to benefit from the national public safety informatization construction trend. The company's intelligent law enforcement case handling platform ranks first in the national market share and has landed on various provincial smart law enforcement case handling platforms in Qinghai, Ningxia, Guangdong, Shandong, etc., laying a good accumulation for subsequent business expansion.

Maintain an “increase in holdings” rating

Considering the fluctuation in the company's project delivery schedule in the short term, we expect the company's net profit from 2022 to 2024 to be 0.11/124/209 million yuan. Comparable to the company's 2023 Wind forecast, the average PE value is 47x. Considering that the company's transportation business and public security business are expected to achieve continuous breakthroughs, the company was given 57xPE in 2023, with a target price of 4.05 yuan, maintaining the “increase in holdings” rating.

Risk warning: The order volume falls short of expectations, and there is a certain cycle of new customer expansion.