Event: the company released its quarterly report for 2023 on October 27. 1~3Q23 achieved revenue of 1.077 billion yuan, YoY-26.8%, net profit of-88 million yuan, compared with-51 million yuan in the same period last year, and non-net profit of-103 million yuan, compared with-82 million yuan in the same period last year. The performance is basically in line with previous market expectations. The company is the core target of informatization, and the core business continues to achieve product layout breakthroughs, but this year, the overall market environment has affected, business orders have declined.

Quarterly results are more volatile; gross profit margin has improved. 1) in a single quarter, the company's 3Q23 achieved revenue of 338 million yuan, YoY-43.9%, net profit of-47 million yuan, compared with-6 million yuan in the same period last year, and non-net profit of-53 million yuan, compared with-22 million yuan in the same period last year. From the perspective of historical law, the company's quarterly performance fluctuates greatly, and more revenue is generally recognized in the fourth quarter of the year. 2) profitability: 1~3Q23 gross profit margin increased by 0.6ppt to 18.3% compared with the same period last year, while net profit margin decreased by 4.7ppt to-8.0% compared with the same period last year. 3Q23 gross profit margin rose 2.8ppt to 16.6% year-on-year; net profit margin fell 12.8ppt to-13.8% year-on-year.

Cash flow from operating activities has improved; inventory has increased to a certain extent. During the 1~3Q23 period, the expense rate increased by 5.8ppt to 28.6% compared with the same period last year. 1) the sales expense rate increased from 1.0ppt to 7.2%; 2) the management expense rate increased from 6.3ppt to 18.1%; 3) the financial expense rate was 2.7%, compared with 3.6% in the same period last year. 4) the R & D expense rate decreased to 0.6% compared with the same period last year. By the end of 3Q23, the company: 1) accounts receivable and bills 2.104 billion yuan, 6.2% less than at the end of 2Q23; 2) prepayments 66 million yuan, an increase of 6.3% over the end of 2Q23; 3) 1.862 billion yuan of inventory; 3.5% more than at the end of 2Q23; 4) a contract liability of 358 million yuan, an increase of 16.6% over the end of 2Q23. The net cash flow of 1~3Q23 's operating activities was-281 million yuan, compared with-426 million yuan in the same period last year.

Continuous breakthroughs in radar business; create an influential power brand. 1) Radar and radar supporting plate: in the field of ATC radar, with the deepening of the localization process of ATC equipment, the company improves the market layout of special and domestic ATC primary / secondary radar, scene surveillance radar and multi-point positioning system, research and development of surveillance derivative products. In the field of low-altitude surveillance radar, the company speeds up the cultivation of new business growth points and strives to make breakthroughs in the areas of air / sea early warning detection and the construction of a complex battlefield environment. 2) Public security plate: mainly security, civil air defense / army / food informatization. 3) Power supply sector: revenue is mainly contributed by Huayao Electronics products, and the company ploughs defense equipment, new energy vehicles, high-voltage electrical and other subdivisions to create influential power brands in the subdivisions.

Investment suggestion: the company has a complete product pedigree based on the three business sectors of "electronic equipment, industrial foundation and network information system" and the layout of "perceptual products, perceptual basis and perceptual application". In June 2022, the company implemented equity incentives, which brought about changes in governance and demonstrated firm confidence in future development. We take into account the impact of downstream demand release rhythm, adjust the profit forecast, the company's 2023-2025 net profit is expected to be 69 million yuan, 88 million yuan, 116 million yuan, respectively, the current stock price corresponds to 2023-2025 PE is 84x/65x/50x, we take into account the company's three major business layout and industry status, maintain the "cautious recommendation" rating.

Risk tips: new product research and development is not as expected, product production and delivery is not as expected, etc.