Event: the company publishes its 2022 semi-annual report. 2022H1, the company realized revenue of 129 million yuan, down 23.81% from the same period last year, and realized a net profit of 10 million yuan, down 78.98% from the same period last year.

2022Q2, the company realized revenue of 117 million yuan, down 21.98% from the same period last year, and realized net profit of 22 million yuan, down 52.11% from the same period last year.

Affected by the epidemic in the first half of the year, product delivery lagged behind, revenue declined, and it is expected to recover gradually in the later stage. In the first half of the year, the company's revenue fell 23.81% from the same period last year, and revenue in the second quarter fell 21.98% from the same period last year. Due to the repeated influence of the domestic epidemic situation, the epidemic situation in the location of the company, user units and some supporting units is strictly controlled, the travel of personnel is limited, and the technical exchange and joint testing of the development project are blocked, resulting in the overall progress of the project lagging behind. Follow-up orders could not be issued or implemented as expected; batch production projects were affected by supply chain and acceptance, and the delivery of some projects and products was delayed, resulting in a decline in business revenue in the first half of the year compared with the same period last year. We believe that with the gradual improvement of the epidemic situation in some parts of the country and the active response measures taken by the company, the company is expected to recover gradually in the later stage of revenue.

The increase in management fees and R & D fees over the same period last year has a certain impact on the company's net profit. During the reporting period, the company's expense rate was 52.37%, an increase of 21.99pct over the same period last year, in which management expenses, sales expenses, financial expenses and R & D expenses accounted for 26.3%, 6.16%,-0.7% and 20.6%, respectively, and the year-on-year changes were + 12.73pct, + 5.69pct,-3.21pct, and + 15.16pct, respectively. In the first half of the year, due to the influence of equity incentive expenses, depreciation expenses and long-term prepaid expenses, the company's management fees increased significantly; although the company's revenue decreased in the first half of the year, R & D expenses still increased compared with the same period last year, resulting in a substantial increase in the rate of R & D expenses. We believe that although the company's revenue declined in the first half of the year, the company's R & D investment continued to grow, indicating that the company's R & D projects are full, and the company's performance is expected to grow at a high speed in the future.

The successful networking of the third generation of Beidou will stimulate the demand for satellite navigation products of the company: on June 23, 2020, the last Beidou 3 satellite was successfully launched, marking the completion of the networking of the global satellite navigation system of the third generation of Beidou, compared with the second generation of Beidou. The third generation system has higher positioning accuracy, wider coverage and more customers. The successful networking of navigation satellites will often lead to the demand for navigation terminal products. For example, after the completion of the networking of Beidou second-generation system in 2012, the performance of the industry chain related to the development of Beidou navigation terminal equipment has increased significantly. We believe that after the completion of the third generation of Beidou network, the demand for Beidou navigation terminal will play a stronger role, and the company's satellite navigation products will have strong certainty in the future, which will become an important growth point of the company's performance.

The active layout of electronic countermeasures business is expected to become a new growth point of performance: in the first half of 2021, the company took electronic countermeasures as the strategic development direction of the company's business through industry development and market demand analysis, and set up the electronic countermeasures division. At the same time, it has increased the investment of resources in market development, technology development, talent introduction and so on. As the electronic countermeasure technology has a high homology with the company's existing technology, the company has a technical foundation in the electronic countermeasure business, and is expected to further expand the boundary of the company's technological capability and become a new growth point of business.

Investment advice: we expect the company's net profit from 2022 to 2024 to be 1.9,2.8 and 380 million yuan respectively, and the PE of the previous share price to be 43,29 and 21 times respectively, and continue to give a "buy-A" rating.

Risk hint: the risk that the company's product delivery is less than expected by the epidemic; the risk that the company's R & D progress of the research project is not as expected.