Event: the company released its quarterly report for 2023 on October 24. 1~3Q23 realized revenue of 274 million yuan, YoY + 17.7%; net profit of 11.56 million yuan, YoY + 16.7%; deduction of non-net profit of 3.15 million yuan, YoY + 42.3%. The performance was slightly lower than previously expected, mainly because the company was affected by the slowing pace of demand in the industry as a whole. But at the same time, we should note that the company's inventory 3Q23 increases more, or reflects that the company's demand begins to change or delivery increases more.

The gross profit margin of 3Q23 increased significantly. 1) single quarter: 3Q23 achieved revenue of 39.99 million yuan, YoY-61.5%, net profit of-19.52 million yuan, compared with-160000 yuan in the same period last year, and non-net profit of-20.41 million yuan, compared with-1.8 million yuan in the same period last year. 3Q23 losses are mainly due to lower-than-expected downstream demand. 2) profitability: 3Q23 gross profit margin increased by 19.5ppt to 64.4% compared with the same period last year; net profit margin was-44.4% (with little reference); 1~3Q23 gross profit margin decreased by 1.3ppt to 52.0% compared with the same period last year; and net profit margin increased by 0.5ppt to 4.5% year-on-year.

The ability of cost control has been improved; inventory has increased by 46% compared with the end of 2Q23. During the 1~3Q23 period, the expense rate decreased from 2.3ppt to 55.5% compared with the same period last year; 1) the sales expense rate decreased from 1.0ppt to 7.3%; 2) the management expense rate increased from 0.5ppt to 26.5%; 3) the financial expense rate was 1.5%, compared with-0.2% in the same period last year; 4) the R & D expense rate decreased from 3.5ppt to 20.3% year-on-year; R & D expenses increased by 0.3% to 56 million yuan compared with the same period last year.

By the end of 3Q23, the company: 1) accounts receivable and bills 740 million yuan, 2.6% less than 2Q23 2) prepaid 20 million yuan, 27.1% less than 2Q23 3) inventory 352 million yuan, 46.2% more than 2Q23 4) contract liabilities 3 million yuan, 16.7% more than 2Q23 end. The net cash flow of 1~3Q23 's operating activities was-119 million yuan, compared with-139 million yuan in the same period last year.

Issue convertible bonds to raise 300 million yuan; layout electronic countermeasures to create new growth points. On October 17, the company listed convertible bonds, raising 300 million yuan mainly for the construction of electronic countermeasures equipment research and production center. The company regards electronic countermeasures as the strategic development direction, and sets up the electronic countermeasures division, which aims to achieve the strategic goal of "based on the field of satellite navigation and communications, actively expand electronic countermeasures business, and properly explore new applications of civilian products". The main body of the project is wholly-owned subsidiary Mengsheng Science and Technology, with a construction period of 3 years and a production capacity of 100% in 2 years after completion. It is estimated that the annual revenue will reach 350 million yuan and the net profit will be 100 million yuan. With the help of the company's overall technical strength and the technical reserve formed by the first-mover advantage in the specific field of electronic countermeasures, the company has won the development orders of a number of electronic countermeasure equipment models by means of open bidding, and will gradually achieve product stereotyping and mass production; at the same time, the company participates in a number of project demonstration and research, representing that the company's electronic countermeasure technology has obvious market competitiveness.

Investment suggestion: the company is the core private supplier of satellite navigation, and the demand is expected to grow rapidly; at the same time, the active layout of electronic countermeasures is expected to create a new profit growth point. The company implemented equity incentives in 2022, demonstrating long-term development confidence. Taking into account the downstream demand release rhythm, we adjust the profit forecast, the company's 2023-2025 net profit is expected to be 121 million yuan, 354 million yuan, 508 million yuan, respectively, the current stock price corresponding to 2023-2025 PE is 59x/20x/14x. We maintain the "recommended" rating, taking into account the company's competitive advantage and room for growth.

Risk tips: fund-raising project construction is not as expected, raw material prices fluctuate, orders are lower than expected, and so on.