Event summary: On October 25,2023, the Company released the report for the third quarter of 2023. In the first three quarters of 2023, the Company realized operating income of CNY 5.252 billion, with a year-on-year growth of 8.41%; net profit attributable to parent was CNY 324 million, with a year-on-year growth of 273.16%; net profit deducted from non-parent was CNY 154 million, with a year-on-year growth of 155.96%.

Under the background of economic recovery, the performance recovered obviously, and the industry leader accelerated the business expansion. In the first three quarters of 2023, the operating income increased by 8.41% year-on-year, and the net profit deducted from non-parent increased by 155.96% year-on-year; in Q3 of 2023, the operating income increased by 9.62% year-on-year, and the net profit deducted from non-parent increased by 52.41% year-on-year. On the intelligent transportation side, the Company continuously polished the cooperation with local governments, central state-owned enterprises and operators from the perspective of ecological cooperation; on the intelligent IoT side, in the first half of the year, it launched the industry large model and launched the seed partner plan of the industry large model, which clarified the strategic direction of taking channels as the first plane from the business ecology.

Traffic, security two-wheel drive layout of the development of digital economy industry. 1) Smart Transportation: In 2020, the Company completed the construction of a national highway network operation monitoring management and service platform for the Ministry of Transport-Road Network Monitoring and Emergency Response Center, forming a national road network for the first time, and based on this, providing more perfect traffic digital service products for multiple fields. For local traffic management departments, the company helps them to realize precise safety supervision and management of heavy freight vehicles, effectively reduce accident rates, adopt SaaS business model, promote and apply in traffic management departments in Beijing, Hebei and other places, some areas have landed, relevant orders can reach tens of millions of orders this year, tens of millions of orders next year, and the use effect is good. For expressway companies, the company assists them in improving quality, increasing efficiency and increasing revenue by drainage to develop corresponding digital service products. At present, the pilot effect is good. 2) Intelligent IoT: In the first half of the year, the company released CV industry model, some users are promoting the landing, the long tail demand of the industry will gradually increase due to the technological change, and at the same time, new business models such as model service will have the opportunity to gradually land with the maturity of the industry model, driving the industry to have a broader market space. The company is actively exploring cooperation with operators, and has also been shortlisted in the procurement list, ranking high, and forming more business increment points.

The net profit of the parent company has increased significantly, and Hongquan IOT has a leading position in the industry. In the first three quarters of 2023, the net profit attributable to the parent company increased by 273.16% year-on-year, mainly due to the expansion of the company's business scale under the economic recovery and the change in the stock price of Hongquan IOT. Hongquan IOT is a high-tech enterprise that uses big data, artificial intelligence and 5G and other cutting-edge technologies to develop, produce and sell products such as automobile intelligent networking equipment and big data cloud platform, and has a leading position in the field of intelligent transportation.

Investment suggestion: The company is the leader in the field of intelligent Internet of Things and intelligent transportation. The intelligent Internet of Things field has a leading position in the world. The intelligent transportation field has important growth potential in the future. In the future, the company will fully combine its own business and intelligence to open up long-term growth space. It is estimated that the net profit attributable to the parent company from 2023 to 2025 will be RMB 784/982/1.182 billion yuan, and the corresponding PE will be 23X, 18X and 15X respectively, maintaining the "recommended" rating.

Risk warning: The implementation of smart IoT business is less than expected; the R & D and expansion of the company's products are less than expected; the price of products may fluctuate.