Events:

On October 30th the company released its third quarter 2023 report. During the reporting period, the company achieved operating income of 3.37 billion yuan, an increase of 32.84% over the same period last year, an increase of 6.05% over the same period last year; net profit of 39.8054 million yuan, an increase of 2.55% over the same period last year, an increase of 13.75% over the previous year; and net profit of 36.1663 million yuan, an increase of 0.94% over the same period last year. In the first three quarters of 2023, the company achieved a cumulative operating income of 9.942 billion yuan, an increase of 34.00% over the same period last year, a net profit of 95.1235 million yuan, an increase of 7.61% over the same period last year, and a non-return net profit of 80.8993 million yuan, an increase of 12.03% over the same period last year.

The R & D expenditure maintained a high growth, and the gross profit margin increased from the previous month.

The company's 2023Q3 R & D expenditure reached 40.3362 million yuan in a single quarter, an increase of 10.03% over the same period last year. The cumulative R & D expenditure in the first three quarters of 2023 reached 119 million yuan, an increase of 18.44% over the same period last year. The company's 2023Q3 gross profit margin reached 5.00%, with a month-on-month growth of 0.31 PCT. Overall gross profit margin reached 4.61% in the first three quarters of 2023, with an increase of 0.19pct.

Increase investment in overseas subsidiaries to expand business in the international market

On October 30, the company announced that in order to further enhance its international competitiveness and open up overseas markets, it intends to use its own funds to increase the capital of 3D Hong Kong, a wholly owned subsidiary, by US $20 million. After the capital increase is completed, the registered capital of 3D Hong Kong will be increased to US $40 million. We believe that the company's overseas communications business is one of the main performance growth points, and the gross profit margin has a greater advantage over the communications domestic business. This capital increase will help to further improve the revenue and profits of this sector, and then have a positive impact on the overall performance of the company.

Earnings forecast, valuation and rating

We estimate that the company's operating income from 2023 to 2025 will be 111.04 Universe 121.29Universe 13.249 million, with a year-on-year growth rate of 7.85 percent, 9.23 percent, 9.24 percent, and net profit of 1.62 percent, 2.13 percent, and 251 million yuan, respectively, with a year-on-year growth rate of 19.60 percent, 31.41 percent, 18.21 percent, and 18.21 percent, respectively, and a 3-year CAGR of 22.94 percent. In view of the steady growth of the company's communications business and the continuous promotion of cost reduction and efficiency of the Internet advertising business, with reference to the valuation of the comparable company, we give the company 40 times PE in 2024 with a target price of 10.51 yuan and maintain a "buy" rating.

Risk hint: overseas business development falls short of expected risk, Internet advertising business optimization falls short of expected risk, and business synergy falls short of expected risk.