Event: the company released the three-quarter report for 2020, the first three-quarter income (322 million yuan, + 6.78%), the net profit of the first three quarters (51 million yuan, + 519.84%), and the net profit of the third quarter alone (152 million yuan, + 35.71%), and the net profit of the third quarter (39 million yuan, + 5929.62%).

The component business is the main source of contribution to the performance, and is expected to continue to maintain a high growth trend. The company's performance has increased significantly in the first three quarters, mainly due to the continuous improvement of the integrated circuit business and the continuous recovery of Beidou business after Bei 3 netting. At the same time, the company actively promotes the production and delivery of products, driving the sales growth of components and module products and Beidou related products. And the company's credit impairment and asset impairment losses in the first three quarters decreased by 79.83% and 93.81% respectively compared with the same period last year:

1) according to the quarterly split, the company's Q3 achieved 152 million yuan in revenue and 39 million yuan in net profit, which increased significantly over the same period last year and accounted for 47.20% and 76.47% of the revenue and profits in the first three quarters. 2) according to the split of the parent and subsidiary companies, the income of the Q3 parent company (79 million yuan, + 29.51%), the net return to the parent company (30 million yuan, + 172.73%), and the net profit of the parent company accounts for 76.92% of the company's Q3 net profit, reflecting that components and module products are the main sources of company performance growth. We believe that, taking into account the integrated circuit business benefits from domestic substitution and independent and controllable development trend, the company's components and module sales are expected to continue to maintain a high growth trend, the company's performance may grow steadily.

Gross profit margin and net profit margin increased significantly. The company's gross profit margin increased 21.64% in the third quarter compared with the same period last year, which is expected to be mainly due to the increase in the delivery of high gross margin components and module products and Beidou business, and the net profit of Q3 turned into profit compared with the same period last year, achieving a net profit rate of 27.54%.

Prepaid and prepaid accounts increased compared with the same period last year, and operating cash flow gradually improved. The company's inventory increased by 59.18% compared with the beginning of the period, mainly due to the increase in products and commissioned processing materials, and the prepaid account increased by 76.31% compared with the beginning of the period, mainly due to the increase in the payment for prepaid materials and outsourcing processing, or reflected that the company was full of orders on hand and is actively preparing for production. The net cash flow of the company's operating activities increased by 4200 yuan compared with the beginning of the period, mainly because the increase in rebates from customers in the industry over the same period last year led to an increase of 33.12% in cash received for the sale of goods and services, and the company received funds for major special projects and increased government subsidies.

The product technology is leading in China, and the integrated circuit business is expected to become an important performance growth point. The company's integrated circuit products include Beidou chip, DDS chip, video chip and so on. Us export controls have increasingly highlighted the importance of military power and independent control. Among them, digital array is the development direction of radar array technology, TR module is the core of digital phased array radar, unit price is more than 10,000 yuan, and DDS chip is an important part of digital radar TR module. At present, the technology of frequency synthesizer is mainly mastered by ADI, Maxim and other companies. High-end DDS chips in domestic special industries are limited by foreign countries. It is expected that there is a great demand for DDS chips in domestic special industries. The company is the unit with the highest level of DDS development in China. At present, DDS has initially achieved batch sales, and the company continues to break through the key technologies such as high-speed signal processing and frequency synthesizer to maintain a stable success rate. We believe that the DDS technology accumulated by the company over the years has gradually matured and laid the foundation for subsequent entry into large-scale systems and projects through market development. in addition, radar is connected with 5G technology, and integrated circuit products also have the possibility to expand in the field of civilian products.

The global networking of Beidou No. 3 has been completed. Beidou Business is gradually warming up. As one of the main suppliers of Beidou terminals in special industries, Beidou has 9 series of more than 50 terminals, such as handheld, vehicle-mounted, command and so on. Beidou terminal products occupy a large market share. According to the 2020 semi-annual report, the company has launched Beidou No. 3 baseband signal processing products, and the acceptance sensitivity and positioning accuracy have met the engineering application requirements. In the direction of Beidou application terminal, the company has developed Beidou maritime mobile terminal, and achieved the first place in prototype comparison, and the company's Beidou dual-mode handheld terminal also realizes picture and voice transmission functions. at the same time, the company's vehicle-mounted Beidou navigation anti-interference products have been delivered in batches, and low-cost vehicle and ship positioning terminal products have been successfully launched. In addition, according to the announcement, the company received a purchase order of 184 million yuan for Beidou related equipment from a certain unit on August 24, which may help the company to further expand the market share of Beidou products and reflect the technology and market advantages of Beidou products. it is of great significance to further expand the application market of Beidou. We believe that because the special industry Beidou terminal market was greatly affected by the military reform in the early stage, the company's Beidou business declined to a certain extent in 2017-2018, but it is expected that after the normalization of bidding and procurement, Beidou business may have restorative growth, and the company's performance is expected to pick up and have some flexibility.

Pay attention to the relevant litigation situation of the controlling shareholder, the company's business development may take a turn for the better according to the announcement, the board of directors has passed the motion of "re-identifying the actual controller of the company", and the company has determined that there is no real controller. It is expected that after gradually resolving the obstacles to development, the company's business development is expected to take a turn for the better and continue to pay attention to the follow-up progress.

Investment suggestion: the company is the core target of independent control, not only the main supplier of Beidou in the special industry, but also has core technical advantages in high-performance integrated circuits, which will be an important support for the company's performance growth in the future. with the completion of the global networking of Beidou 3, pay attention to the gradual warming of satellite navigation business; after the completion of non-controller certification, the company's business development is expected to usher in a turnaround. We expect the company's net profit from 2020 to 2022 to be 0.77, 1.09 and 140 million yuan respectively, with corresponding valuations of 137,97 and 75 times, respectively, maintaining the "buy-B" rating.

Risk hint: the development of Beidou and integrated circuits is not as expected; the progress of equity issues is not as expected.