Performance summary: in the first three quarters of 2023, the company achieved operating income of 1.08 billion yuan, an increase of 7.6% over the same period last year; net profit of 150 million yuan, down 15.4%; and non-return net profit of 130 million yuan, down 23.9% from the same period last year. In the third quarter of 2023, the company achieved revenue of 360 million yuan, an increase of 10.6% over the same period last year, a net profit of 50 million yuan, an increase of 7.3% over the same period last year, and a net profit of 40 million yuan, down 7.1% from the same period last year.

Q3 gross profit margin increased further compared with the previous month, and the cost side increased slightly. In the first three quarters of 2023, the company's sales gross profit margin / net profit margin was 33.7% / 14.3% respectively, down 2.9 ppmax / 3.9ppp from the same period last year; single Q3 gross profit margin / net profit margin was 35.3% / 14% respectively. Compared with + 1.2pp/-1.5pp respectively, the increase in gross profit margin is mainly due to the scale effect of products and the continuous promotion of reducing cost and increasing efficiency. Expense side: the sales / management (including R & D) / financial expense rates of the company in the first three quarters were 8.6%, 14.2% and 0.3%, respectively, up 1.3pp/0.5pp/0.1pp from the same period last year.

Investment in R & D has further increased, and the advantage of PLC high-tech barriers is solid. In the first three quarters of 2023, the company's R & D expenditure rate was 9.4%, an increase in 0.6pp compared with the same period last year, and the R & D expenditure rate remained at an all-time high. According to our statistics, by 2023, the domestic replacement rate of China's low-voltage frequency converter / servo system / PLC (including medium and large scale) is about 42%, 45%, 15%, respectively, for the high technical barriers of industrial control products, and some of the middle and high end areas are still occupied by foreign investors such as ABB and Siemens. As the forerunner of domestic PLC, medium and large PLC continues to invest in research and development, which is expected to break through foreign monopoly and expand market share.

The recovery trend of industrial control downstream traditional industries is gradually showing, and the company's traditional industries account for a relatively high proportion, which is expected to fully benefit. At the macro level, the global manufacturing PMI was 48.7% in September 2023, rising 0.4pp for the third month in a row, while in China it was 50.2%, up 0.5pp from the previous month, returning to the expansion range. At the meso level, according to the monthly order data of the industry, the demand of traditional industries has been steadily upward since May. At the micro level, the company's products mainly focus on logistics, textile, carpentry, packaging and other areas, and are expected to benefit from demand recovery to drive performance growth.

Profit forecast and investment advice. The company's revenue from 2023 to 2025 is expected to be 1.57 billion yuan, 1.93 billion yuan and 2.31 billion yuan respectively, and the growth rate of net profit for the next three years will be 4.6%, 33.2% and 27.6%, respectively. The company's products accelerate iteration, have strong competitive strength, and are expected to benefit from the recovery of downstream traditional industries, promote the company's performance to recover, and maintain the "hold" rating.

Risk hints: the risk of falling product prices due to increased competition; the risk of rising raw material prices; the risk that product research and development is not as expected; and the risk that the recovery of downstream traditional industries is not as expected.