Event: The company released its three-quarter report for 2023. In 2023, Q1-3 achieved revenue of 1,940 billion yuan, a year-on-year decrease of 24.16%, and net profit of a net profit of 123 million yuan, a year-on-year decrease of 47.03%.

Key points of investment

Revenue is expected to recover, waiting for order demand to improve: the company achieved total revenue of 1,940 billion yuan in Q1-3 in 2023, a year-on-year decrease of 24.16%, and realized net profit of 123 million yuan, a year-on-year decrease of 47.03%, mainly due to 1) market price fluctuations of the company's products; 2) contract delivery progress was lagging behind; 3) some products only delivered a small amount of equipment at the end of the third quarter due to adjustments in research and production plans (expected to be delivered by the end of the year). As of mid-2023, the company had an inventory of 1,605 billion yuan, an increase of 0.85% over the same period last year, indicating that the company still has confidence in future sales orders and is actively preparing goods to prevent unforeseen needs.

The company focuses on investment projects, and the return on investment continues to rise: in terms of investment activities, the company received a total of 0.9 billion yuan in cash from investment income in Q1-3 in 2023, and a total of 0.04 billion yuan in cash received from investment income in the same period last year; the company's net cash flow from investment activities in Q1-3 in 2023 was -45 million yuan, and the net cash flow from investment activities in the same period last year was -833 million yuan.

The hydroacoustic electronics business occupies the core of the industry, and the potential downstream demand is huge. The company's subsidiaries are core suppliers of domestic hydroacoustic electronic equipment, important suppliers of some special electronic and information technology equipment, and major domestic suppliers of some special electronic components. From an industry perspective: 1) Hydroacoustic equipment technology is still at the core of the construction of underwater capacity systems, and the demand for improvements in the technical level, quality level, and application effectiveness of equipment related to hydroacoustic electronics has created a continuous and stable industry demand; 2) In terms of multi-purpose marine environment monitoring, marine information communication networks and service systems, infrastructure needs based on hydroacoustic technology are urgent; 3) With the development of the marine economy, hydroacoustic technology will be more widely used in marine exploration, marine surveying and mapping, ocean monitoring, and resource development.

Profit forecast and investment rating: The company's performance is in line with expectations. Considering the pace of downstream equipment volume, we adjusted our previous forecast. The net profit for 2023-2025 is expected to be 6.12 (-0.59) /8.48 (-0.52) /10.92 (-0.64) billion yuan, corresponding to PE 25/18/14 times, respectively, maintaining the “increase in holdings” rating.

Risk warning: 1) The construction of fund-raising projects falls short of expectations; 2) raw material prices fluctuate; 3) orders fall short of expectations.