Overview of events:

Recently, Hollivo released its report for the first three quarters of 2023. In the first three quarters of 2023, the company achieved operating income of 225 million yuan, an increase of 16.53% over the same period last year; net profit of 18.512 million yuan, down 4.6%; and non-return net profit of 7.476 million yuan, down 22.18% from the same period last year.

The repair situation continued in the third quarter, inventory and contract assets significantly increased single Q3, and the company achieved revenue of 91.03 million yuan, an increase of 9.53% over the same period last year, mainly due to the stabilization of the external environment. The project implementation and delivery of the electromagnetic measurement business, which accounts for the company's main source of income, has been carried out smoothly. On the profit side, the company's gross profit margin in the first three quarters was 35.39%, a decline in 4.23pcts compared with the same period last year, mainly due to the higher hardware cost of the current settlement of the project, which led to a decline in net profit compared with the same period last year. Throughout the year, we expect the company's gross profit margin to return to normal and increase steadily with the increase in the proportion of self-developed hardware. It is worth noting that according to the third quarter report, the company's inventory and contract assets increased significantly, to 116 million yuan and 56 million yuan respectively, an increase of 140.5% and 91.0% over the same period last year, indicating that the company is more optimistic about the follow-up market demand, and the repair situation is expected to continue further.

Electromagnetic measurement application scene continues to expand, satellite test orders grow rapidly according to the 2023 semi-annual report, the company's satellite-oriented electromagnetic measurement system business (including phased array calibration measurement system and radio frequency measurement system) has achieved rapid order growth. In recent years, the number of Leo satellite launches around the world has continued to increase, mainly due to the gradual emergence of the value of Leo satellites in the fields of low-delay communications, military industry and the Internet of things, while the spectrum and orbit assignment of Leo adopts the principle of "first-come-first-served". Therefore, major economies in the world have launched an active layout in the field of Leo satellites.

At the same time, Leo satellite measurements are widely distributed in all aspects of its industrial chain, including satellite payload, whole satellite and ground stations, etc. With the successful launch of China's first satellite Internet technology test star, the Leo communication satellite industry is expected to enter the fast lane, and the measurement market demand for Leo satellites has shown and is expected to maintain a rapid growth trend. Considering that Hongjie Electronics acquired by the company mainly provides RF measurement systems to relevant manufacturers of satellite loads, and there is also a satellite-oriented demand for phased array calibration measurement systems, we expect the company to be the first to benefit from the improvement of the industry boom.

The number of CAE customers and potential customers continues to increase and is progressing smoothly

According to the 2023 semi-annual report, the number of customers and potential customers of the company's core product 3D electromagnetic simulation software RDSim continues to increase, and it has been applied in aerospace, shipping, colleges and universities and other related units. In addition, at the beginning of 2023, the Ministry of Industry and Information Technology announced the list of excellent industrial software products in 2022, and the company's "RDSim three-dimensional electromagnetic simulation software" was successfully selected, demonstrating a strong recognition of the capability of software products. We believe that since the release of Q4 version 1.0 in 2021, the company's CAE products have made rapid progress, mainly for two reasons: 1) the company's advantage of "integration of simulation and testing", that is, software simulation, hardware-in-the-loop simulation and system measurement can be used to verify each other, on the one hand, it can verify the accuracy and effectiveness of the algorithm itself, on the other hand, it can quickly realize the optimization and upgrade of the algorithm. 2) iterations based on customer usage feedback. For CAE vendors, continuous iteration based on customer feedback is the core means of building barriers, and we believe that several seed customers the company currently has also play a positive role in improving CAE software.

Investment advice:

With the continuous climbing of the domestic industrial chain, the value of the simulation industrial chain needs to be explored urgently, and the company is the forerunner of domestic electromagnetic CAE software, and has a certain first-mover advantage. The downstream of the company's measurement and calibration system is widely used and the prosperity is high. Generally speaking, whether in the field of simulation or electromagnetic measurement, the company has a huge space for localization and a high degree of prosperity in the industry. At the same time, the company also has the ability to design phased array antennas and has advantages in the vertical integration of simulation / measurement / design. We estimate that the company's 2023-2025 revenue will be RMB 671 million, with a net profit of RMB 0.73 million and a net profit of RMB 116 million, maintaining a "buy-A" rating. As the company is still in the growth stage, we give a net profit of 60 times PE in 2023, corresponding to a 6-month target price of 60.6 yuan per share.

Risk hints: 1) the R & D of key core technologies and business models of industrial software are not as expected; 2) the continuity and support of relevant software policies are uncertain; 3) product application promotion and industrial ecological construction are not as expected; 4) the supply of professionals is insufficient.