Event: On October 25, 2023, the company released the “Report for the Third Quarter of 2023”. The company achieved operating income of 349 million yuan, +30.76% year-on-year, net profit of 119 million yuan, +18.40% year-on-year, and net profit of 119 million yuan after deduction, +29.63% year-on-year.

Results for the third quarter declined due to economic sentiment: in the third quarter of 2023, the company achieved revenue of 115 million yuan, +10.91% year-on-year. Net profit was realized at 36 million yuan, -19.06% year-on-year, net profit after deduction of 333 million yuan, or -17.68% of net profit from the net profit of the non-return mother. In terms of profitability, the company's Q1-3 gross margin was 61.62%, +4.02pct year-on-year, and net profit margin was 34.06%, year-on-year -3.56pct. The company's Q3 gross margin and net margin were 62.98%/31.10%, +3.29pct/-11.51pct year-on-year, +0.64pct/-4.72pct month-on-month. Due to the slowdown in economic growth, market demand fell short of expectations, and the growth rate declined. The growth of the company's high-end products and radio frequency products slowed in the third quarter, but R&D expenses and sales expenses maintained high growth. At the same time, interest income and non-recurring profit and loss declined, causing the company's profit margin to fluctuate somewhat.

The product line continues to improve, and the trend of instrument localization has not changed: the localization rate of domestic scientific instruments is low, and it is also a key development industry in the country. The localization process will continue to advance in the future. Since the beginning of the year, Dingyang Technology has achieved good growth in high-end products. At the same time, the company continues to launch new products. It has already launched 3 new products in the first half of the year, and launched the SPD4000X series four-channel programmable linear DC power supply in September. The product matrix and competitiveness continue to improve.

Investment suggestion: Dingyang Technology is a leading manufacturer of general electronic measuring instruments, with advantages in product competitiveness and product layout. It is estimated that the company will achieve net profit of 1.6/22/3.1 billion yuan in 2023/2024/2025, corresponding to PE 37/27/20 times, maintaining an “increase in holdings” rating.

Risk warning: The localization substitution process fell short of expectations, the company's promotion of new products fell short of expectations, and domestic competition intensified.