Event: the company released its three-quarter report on October 25, 2023. The revenue in the first three quarters of 2023 was 400 million yuan, the net profit of YoY+15.5%; was 60 million yuan, and the net profit of YoY+38.2%; was 30 million yuan, YoY-30.5%. There are two main reasons for the increase in the company's homing net profit: 1) the downstream demand increases, the order delivery increases, and the revenue increases by 15.5% compared with the same period last year. 2) the transfer of some shares in the company led to an increase in investment income. The comprehensive comments are as follows:

3Q23's revenue increased by 25% year-on-year, and profits turned into profits. In a single quarter, the company: 1) 1Q23~3Q23 realized revenue of 70 million yuan (YoY-32.2%), 240 million yuan (YoY+39.7%) and 90 million yuan (YoY+25.0%) respectively, and realized net profit of-1 million yuan (1Q22 was 10 million yuan), 40 million yuan (YoY+1.8%) and 20 million yuan (3Q22 was-5 million yuan) respectively. The performance improved significantly in the second and third quarters, mainly due to the growth of downstream demand and the increase in order delivery. 2) the gross profit margin of 3Q23 decreased by 10.25ppt to 46.5% compared with the same period last year; the net profit margin was 22.9% and-6.7%. In the first three quarters of 2023, the comprehensive gross profit margin decreased by 9.89ppt to 45.2% compared with the same period last year, while the net profit rate increased by 2.54ppt to 15.5% compared with the same period last year. The increase in the net profit rate may be mainly due to the enhancement of the company's ability to manage and control expenses (the expense rate decreased by 3.65ppt to 36.2% in the first three quarters of 2023).

The ability of cost control has been improved, and the net cash flow of business activities has been improved. In terms of expenses, the company's expense rate during the first three quarters of 2023 was 36.2%, a year-on-year decrease in 3.65ppt. Among them: 1) sales expense rate 6.2%, year-on-year increase of 0.19ppt; 2) management expense rate of 7.0%, year-on-year decrease of 1.48ppt; R & D expense rate of 22.1%, a decrease of 2.90ppt; R & D expenditure of 88 million yuan, basically the same as the same period last year; 4) financial expense rate of 0.5%, compared with-0.08% in the same period last year; and financial expenses of 1.87 million yuan, compared with-280000 yuan in the same period last year. By the end of 3Q23, the company: 1) accounts receivable and bills 730 million yuan, an increase of 14.1% over the beginning of the year, basically the same as the end of 2Q23; 2) monetary funds of 19 million yuan, a decrease of 76.8% compared with the end of 2Q23; 3) inventory of 350 million yuan, an increase of 12.1% over the end of 2Q23 4) contract liabilities of 2 million yuan, basically the same as at the end of 2Q23 5) the net cash flow of operating activities was-70 million yuan, compared with-150 million yuan in the same period last year.

The issue of convertible bonds has been accepted by the Shanghai Stock Exchange and is intended to be used for projects such as capacity expansion and the construction of R & D centers.

The company intends to issue convertible bonds to non-specific objects to raise a total of no more than 401 million yuan, which will be used for projects such as embedded computer capacity expansion and supplementary investment construction, technical transformation of R & D centers, and supplementary working capital. On October 25, 2023, the company supplemented the inquiry letter of the Shanghai Stock Exchange on the issuance of convertible bonds, but the issuance of convertible bonds is subject to the examination and approval of the Shanghai Stock Exchange and the approval of the China Securities Regulatory Commission.

Investment suggestion: the company is the leader of private enterprises in the special embedded computer industry, benefiting from the integrated development of mechanization, informationization and intelligence of equipment during the 14th five-year Plan, the information market space in the field of special electronics is large, and the company is expected to benefit deeply. According to the change of downstream demand rhythm, we adjust the company's net profit from 2023 to 2025 to 137 million yuan, 196 million yuan and 272 million yuan, and the current stock price corresponds to 27x/19x/13x for PE in 2023 to 2025, maintaining the "recommended" rating.

Risk tips: lower-than-expected demand, price and profit margin changes, etc.