Event: the company announced on October 10 that in the first three quarters of 2020, the revenue was 353 million yuan (+ 75.30%), the net profit was 82 million yuan (+ 1441%), and the non-return net profit was 75 million yuan (+ 16046.59%). The gross profit margin reached 53.32% (+ 5.69pcts). At the same time, it is expected that the operating results for the whole year 2020 will achieve a cumulative net profit of 120 million yuan to 145 million yuan, an increase of 898.68 percent over the same period last year.

Main points of investment:

The market demand for intelligent unmanned systems is strong, and on-hand orders continue to release performance. During the reporting period, the company's business development was in good condition, and orders such as intelligent unmanned systems focused on investment in the early stage began to release performance gradually. In the first three quarters, the revenue was 353 million yuan (+ 75.30%), the return net profit was 82 million yuan (+ 1441%), the non-return net profit was 75 million yuan (16046.59%), and the sales gross profit reached 53.3% (+ 5.69pcts), a record high. Of the four major business contracts disclosed in this year's announcement, three (a certain type of military UAV, a certain type of satellite communication terminal, and a certain type of military training product) have been delivered for acceptance, and confirmed revenue of 64.6637 million yuan, 37.5239 million yuan and 23.7566 million yuan respectively in the first three quarters. The fourth contract with a military customer for a certain type of military UAV is 219 million yuan. The relevant operating income is not confirmed during the reporting period, and delivery is expected to be completed within this year. At the same time, the company expects the 2020 annual operating results to achieve a net profit of 120 million yuan to 145 million yuan, an increase of 898.68% over the same period last year.

The management and control ability of operating cost and various expenses is better, and the operating cash flow is improved obviously. The company's operating cost in the first three quarters was 165 million yuan (+ 56.26%), the growth rate was lower than the revenue 19.04pcts, and the sales gross profit margin reached 53.32% (+ 5.69pcts). During the period, the sales, management, research and development, and financial expenses totaled 102 million yuan (- 8.67%), which was lower than the revenue of 83.97 pcts. The control effect of operating costs and various expenses was remarkable, which promoted the return net profit to increase by 1441% compared with the same period last year. During the period, the net operating cash flow was-11 million yuan (+ 76.57%), which was significantly improved, mainly due to the increase in payment received in the current period and the increase in the maturity of bills receivable; the company generally realized most of its annual operating income in Q4 and changed its operating cash flow from negative to positive at the same time. At the end of the period, accounts receivable was 434 million yuan (+ 10.42%), a slight increase; contract liabilities and accounts received in advance were 29 million yuan (month-on-month + 41.32%, year-on-year + 17.19%), achieving steady growth both month-on-month and year-on-year. Other receivables are 32 million yuan (+ 106.40%), mainly due to the increase in tender deposit and current payments in the current period. The investment of 25 million yuan (+ 489.56%) in other equity instruments is due to the change in the fair value of other equity instruments in the current period.

Make clear the new strategy of "taking inertial technology as the center, leading the development of intelligent unmanned equipment", and achieve continuous breakthroughs in related technologies and products. The company effectively promotes the wide application of inertial technology in communications, navigation, drones, unmanned vehicles and other fields. Based on "Inertial device error Modeling and compensation Technology", "High Precision Inertial Base Integrated Navigation and attitude Measurement Technology", "low cost Integrated gyroscope Technology", "Servo system High Precision Inertial Stability Control Technology", "Flying Wing layout UAV", "Flight trajectory tracking device and Radar", "Control system of Antenna Control Unit", "highly Integrated Avionics system Technology", Patent technology platform with "multi-aircraft formation flight control technology" as the core It has laid a solid product and technology foundation for future development.

In the company's information awareness, satellite communications and unmanned systems in the three major business sectors: 1. Information sensing products, SCA350 medium and large pods have been successfully applied to Rainbow UAV, SCB450 large photoelectric forensics system has been successfully used in customs anti-smuggling forensics, land-based security radar has deeply participated in the construction of Phase I and Phase II of "Wisdom Frontier Defense" in Xinjiang, Tibet, Guangxi and Yunnan, becoming a qualified supplier in the monitoring field of Haikangwei and has realized batch sales. two。 After completing the development and identification of the prototype, the number of orders for satellite communications products and land dual-band mobile communication antennas continued to increase, and the shipborne dual-band antennas were finalized and began to be supplied in batches. A certain number of orders have also been obtained in the civilian direction and speed up the layout of low-orbit satellite communication systems. 3. Unmanned system products, a number of drone products have completed the identification, breaking through the design technology of high-performance target aircraft such as high-speed, mobile, stealth, etc., and the target aircraft has won the first place in the bidding organized by the military many times; after winning the first place in the F2 group of the Army Unmanned system Challenge in 2018, the related products have also completed various tests and are being invited to participate in the military tender.

Sharp wing science and technology obtained 45 million yuan of strategic investment, and the goodwill risk related to star grid ship and power was basically eliminated. The company announced on August 5 that Xinghua Zhaopin plans to subscribe for RMB 5.2941 million of the new registered capital of Jianyi Technology, a subsidiary of the company. After the investment, Xinghua Zhaopin holds 15% of the shares and Xingwang Yuda holds 52.98%. As of March 31, 2020, the net assets of Jianwi Technology is-9.1232 million yuan and the net profit is-1.5427 million yuan. Sharp Wing Technology's pre-investment valuation of 255 million yuan, through the introduction of new investors and funds, can effectively promote the company to achieve full coverage of the target aircraft from the overall to the mission load. Under the background of increasing actual combat exercises, the demand for unmanned target aircraft is expected to be improved, and the forward-looking layout in this field is expected to become a new performance growth point for the company in the future. As the three-year operating performance of Star net Shipbuilding Power is lower than that stipulated in the acquisition agreement, the relevant goodwill has set aside 144 million yuan for impairment in the second half of last year. The company negotiated and reached a consensus with the original shareholders of Star net ship on performance compensation, in accordance with the transaction Agreement on the acquisition of 55% equity interest in Beijing Minghang Science and Technology Development Co., Ltd., signed by the two sides on September 6, 2017, the estimated compensation amount is 133 million yuan, which can basically cover the provision of goodwill. In addition, over the past year, the company has reorganized Star net ship Power from the technical and business levels. at present, its orders have shown restorative growth, with a net profit of 21.4128 million yuan (+ 561.11%) in the first half of the year. it is expected to make more contributions to the performance of listed companies in the future, and the related goodwill impairment risk has been basically eliminated.

Investment suggestion: the company has four military industrial certificates for the scientific research and production of weapons and equipment, which has successfully promoted the wide application of inertial technology in communications, navigation, drones, unmanned vehicles and other military and civilian fields. Intelligent unmanned system has rapidly developed into a new profit growth point of the company. It is predicted that the net profit of the company in 2020, 2021 and 2022 is 143 million yuan, 177 million yuan and 211 million yuan respectively, and the corresponding EPS is 0.91,1.13,1.35 yuan respectively. The current stock price corresponds to 50 times, 39 times and 33 times of PE, respectively. The company is valued at 60 times PE in 2020, and the corresponding stock price is 54.60 yuan.

Risk tips: intensified market competition, the loss of core technical personnel, military bidding, procurement and acceptance did not meet expectations.