Event: the company released its third-quarter report that in the first three quarters of 2023, the company realized operating income of 518 million yuan, an increase of 42.35% over the same period last year. In the same period, the net loss of its parent was 42.094 million yuan, up 54.34% over the same period last year. The net loss of non-homing was 44.722 million yuan, an increase of 55.59% over the same period last year. 2023Q3 achieved an operating income of 194 million yuan, an increase of 57.85% over the same period last year. In the same period, the net profit returned to the mother reached 2.898 million yuan, an increase of 106.59% over the same period last year, and 1.048 million yuan after deducting the non-return net profit.

Quarterly results became positive, and revenue and profits increased significantly compared with the same period last year. The sales revenue of 2023Q1/Q2/Q3 increased by 107.93%, 7.09% and 57.85%, respectively, with a gross profit margin of 45.73%, 37.99%, 44.52% and 44.52%, respectively, compared with the same period last year. We believe that it is mainly due to the improvement in the sales of core network and access network equipment at home and abroad, and the increase in acceptance delivery orders during the reporting period.

The period fee rate of 2023Q3 is 53%, compared with 73% for the same period last year. The period expense rate is reduced by 20pct compared with last year, and the company period rate is significantly reduced, except that the financial rate is increased by 8pct, the sales / management / R & D rate is reduced by 11/8/10pct compared with last year, and the sales / management / R & D cost control efficiency is improved. We believe that the improvement of period fee rate is expected to become one of the company's business strategies.

The rate of repayment of accounts receivable has increased. The income-to-cash ratio of 2023Q3 was 1.3x, a slight decline of 0.6x compared with the same period last year, and the company's net operating cash outflow was 13 million yuan, an improvement of 44 million yuan compared with the same period last year. In the first three quarters of 2023, the company's accounts receivable and bills decreased by 16.3% compared with the same period last year, and accounts receivable decreased by 17.1% compared with the same period last year.

The growing demand for equipment at home and abroad is expected to benefit from Leo satellite networking infrastructure. The company has developed to provide domestic suppliers of private network and public network equipment and technology solutions, as one of the few equipment providers that can supply 5G core network products and technologies, the company's overseas core network and domestic and foreign access network products will continue the trend of increasing demand in 2022. Prior to this, the company exclusively undertook the construction of Tiantong No.1 core network, provided China Telecom Corporation with core network software and hardware equipment, and charged equipment fees and supporting software license fees. The company participates in three types of services in satellite construction: one is the traditional core network business; the other is on-board services, such as on-board links, on-board UPF; and industrial applications of satellites, such as satellite access terminal services such as fishing boats, vehicles and other terminals. As Huawei's demand for mate 60 Pro exceeds expectations, the number of C-end users may increase significantly with the opening of satellite communications applications; at the same time, under the construction demand of the national low-orbit satellite network, the company, as the only supplier of the previous "Tiantong-1" core network project, is expected to become the direct beneficiary of the follow-up construction of low-orbit satellite network.

Investment suggestion: considering the substantial increase in the demand for core network and access network equipment of the company's operators at home and abroad, as well as the elasticity of the company's core network equipment demand under the domestic demand for low-orbit satellite network construction, we expect the company's homing net profit to achieve 0.24 shock 0.95 million yuan in 2025, a year-on-year increase of 111.2%, 291.1% and 95.3%, and PE 184-47-24 times to maintain the "recommended" rating.

Risk hint: the scale of satellite network infrastructure is not as large as expected; the equipment demand of operators at home and abroad is not as expected.