From January to September, operating income was 249 million yuan, down 21.0% from the same period last year; operating profit was 39.06 million yuan, down 44.3% from the same period last year; net profit was 45.76 million yuan, down 39.4% from the same period last year; and basic earnings per share was 0.19 yuan. The revenue in the third quarter was 90.4 million yuan, down 21.2% and 2.8% compared with the same period last year, and the net profit was 14.69 million yuan, down 49.8% and 31.6% compared with the same period last year.

A number of factors led to a continued decline in revenue in the third quarter compared with the same period a year earlier. The security industry as a whole has maintained rapid growth this year, but the macro-tightening policy has led to a slowdown in the progress of some contract projects, and the company has selectively abandoned some orders with heavy advance requirements, which is adversely affected. It is difficult to expand revenue in the domestic market; the slow recovery of overseas market economy has also delayed the delivery of some of the company's projects. In addition, last year, the company benefited from the strong demand for security equipment and a high revenue base driven by the Shanghai World Expo, which led to a decline in revenue this year. At the end of the third quarter, the company's inventory was about 230 million, a substantial increase compared with the beginning of the year, of which about 1/3 were finished goods, which have yet to be confirmed by shipment. The fourth quarter is the peak of corporate settlement, and the progress of settlement will have a greater impact on revenue.

The profitability of the product remains stable and the expense rate is high. The company positioned itself at the high end, avoiding the risk of bargaining in the middle and low end markets. In the first three quarters, the comprehensive gross profit margin was 57.6%, which was basically the same as that in the same period last year. The gross profit margin in the third quarter was 57.2%, only slightly lower than that in the second quarter. The profitability of the product remains at a stable and high level. In terms of expenses, the company has increased its R & D investment and marketing network construction this year, and sales and management expenses have increased rapidly, resulting in a sharp increase in the rate of expenses this year in the face of declining revenue. In the first three quarters, the rate of sales expenses was 28.9%, and the rate of management expenses was 24.8%, an increase of 12.2% and 7.2% respectively over the same period last year, but the net income of financial expenses was 34.27 million yuan, which greatly alleviated part of the expense pressure. It is expected that the pressure of cost growth will ease in the fourth quarter and next year, and the expense rate will have room to decline.

Abundant funds, complete product line and comprehensive channel layout support follow-up growth. During the 12th five-year Plan period, urbanization, safe cities and intelligent transportation are expected to drive the domestic security industry to a compound annual growth rate of more than 20%. The company has constructed a complete product layout with the video surveillance system as the core, and has a leading advantage in matrix switchers, fastballs and optical machines; after listing, the company has raised about 1.3 billion of its funds and has sufficient channel construction layouts, which can support the company's coverage of large-scale comprehensive security projects such as municipal engineering, public security monitoring and various venues, and the follow-up high growth can still be expected.

Profit forecast and investment rating. We downgrade our profit forecast for the company and estimate that the EPS for 2011-2013 will be 0.43,0.60 and 0.94 yuan respectively, corresponding to 53 times, 38 times and 24 times of PE respectively, still maintaining a "neutral" investment rating.