Incident: The company released its three-quarter report for 2023 on October 26. From 1 to 3Q23, it achieved revenue of 845 million yuan, YoY -17.2%; net profit to mother of 89 million yuan, or -27 million yuan in the same period last year, turning a loss into a profit; deducting non-net profit of -61 million yuan, compared to -46 million yuan for the same period last year. The performance was basically in line with market expectations.
3Q23 gross margin increased 9.3ppt year over year. 1) Looking at a single quarter: In 3Q23, the company achieved revenue of 251 million yuan, YoY -30.5%; net profit to mother of -46 million yuan, compared to -038 million yuan in the same period last year; deducted non-net profit of -45 million yuan, compared to -45 million yuan for the same period last year. 2) Profitability: 3Q23 gross margin increased 9.3ppt to 32.8% year over year; net margin decreased 7.9ppt to -18.7% year over year. From 1 to 3Q23, gross margin decreased by 3.0 ppt to 31.7% year on year; net margin increased by 12.9 ppt to 10.1% year over year.
Cash flow from operating activities has improved. The cost ratio increased by 1.5ppt to 39.2% year on year from 1 to 3Q23:1) the sales expense ratio increased by 0.9 ppt to 3.9% year on year; 2) the management expense ratio decreased by 2.1 ppt to 18.5% year on year; 3) the financial expense ratio was 1.5%, compared to 1.2% in the same period last year; 4) the R&D expense ratio increased by 2.3 ppt to 15.4% year on year. By the end of 3Q23, the company: 1) accounts receivable and notes of $1,487 million, up 0.5% from the end of 2Q23; 2) prepayments of $114 million, up 59.4% from the end of 2Q23; 3) inventory of $1,141 million, up 6.1% from the end of 2Q23; 4) contract liabilities were $122 million, up 17.1% from the end of 2Q23. Net cash flow from operating activities from 1 to 3Q23 was -181 million yuan compared to -195 million yuan for the same period last year.
Radar system solution provider; leading in the satellite real-time processing industry. By product, 1H23:1) Radar system: achieved revenue of 250 million yuan, YoY +11.9%, accounting for 41% of total revenue, and gross margin fell 14.83ppt to 26.8% year over year. The company continues to break through design limitations, carry out process innovation, promote the development of active and passive microwave devices in the direction of high integration and small size, and lay a favorable foundation for subsequent batch orders.
2) Satellite applications: Achieved revenue of 110 million yuan, accounting for 19% of total revenue, and gross margin increased 2.12ppt to 36.4% year-on-year. The company continues to expand airborne and terrestrial remote sensing applications to complete the “star, aircraft, ground” product layout. Launch an integrated remote sensing satellite ground mobile receiving station for system-level applications. 3) Intelligent control: Achieved revenue of 130 million yuan, accounting for 21% of total revenue, and gross margin fell 8.24ppt to 41.8% year-on-year. 4) Secure storage: Achieved revenue of 80 million yuan, YoY +14.7%, accounting for 14% of total revenue, and gross margin fell 18.38ppt to 22.9% year-on-year. 5) Intelligent connectivity: Achieved revenue of 0.2 billion yuan, accounting for 4% of total revenue, and gross margin increased 2.55ppt to 26.7% year-on-year.
Investment proposal: The company is a high-tech company dedicated to sensing, navigation and digital systems. It has formed five major business groups: radar systems, intelligent control, satellite applications, secure storage, and intelligent networking. It will benefit from the continued boom in the special and civilian markets during the “14th Five-Year Plan” period. We expect the company's net profit from 2023 to 2025 to be 153 million yuan, 207 million yuan, and 274 million yuan, respectively. The current stock price corresponds to 2023-2025 PE of 50x/37x/28x, respectively. We maintain a “careful recommendation” rating considering the pace of downstream demand and the layout of the company's satellite industry chain.
Risk warning: Fundraising project construction falls short of expectations, raw material prices fluctuate, orders fall short of expectations, etc.