Event: Tianrongxin released its report for the first three quarters of 2023. The company achieved operating income of 1,648 billion yuan, up 12.63% year on year; net profit attributable to owners of the parent company - 248 million yuan, up 40.85% year on year; net profit attributable to owners of the parent company - 264 million yuan, up 42.38% year on year; gross profit margin of 62.31%, up 1.09 percentage points year on year. Net cash flow from the company's operating activities was -187 million yuan, an increase of 78.53% over the same period last year. The main components are: (1) The company strengthened the effectiveness of accounts receivable collection, and the payment received increased by 297 million yuan over the same period last year. (2) As a result of a year-on-year decrease of 369 million yuan in payment of goods and wage expenses.

Revenue grew steadily, and the performance of the new business was impressive. In the first three quarters of 2023, the company achieved revenue of 1,648 billion yuan, an increase of 12.63% over the previous year. Looking at industry segments, the revenue of the local government industry increased by 43.90%; the revenue of the operator industry increased by 24.72%; and the revenue of the education industry increased by 16.04%. In terms of new business, cloud computing revenue increased 35.83%; Xinchuang revenue increased 185.73%; and cloud security revenue increased 45.46%.

Single Q3 revenue grew steadily and positively, profit losses narrowed, and gross margin increased significantly. In the third quarter of 2023, the company achieved operating income of 644 million yuan, up 10.32% year on year; net profit attributable to parent company owners - 36 million yuan, up 83.09% year on year; in terms of gross margin, the company's share of high margin business increased in single Q3 in 2023; Q3 gross margin continued to increase by 8.1 percentage points on the basis of Q2 growth, and the gross margin of 2023Q3 company increased 20.77 percentage points year on year.

The company's fee control effect was remarkable, and the company's expenses were basically the same compared to the previous year. In the first three quarters of 2023, the company's R&D expenses were 585 million yuan, down 5.92% year on year; sales expenses were 643 million yuan, up 9.97% year on year; and management expenses were 214 million yuan, down 9.78% year on year. The company's expenses for the period from January to September 2023 were basically the same year on year, and the fee rate for the period decreased by 11.17 percentage points year on year. The R&D side company has completed pre-investment and comprehensive layout in the direction of cloud computing, cloud security, innovation security, data security, industrial Internet security, and Internet of Vehicles security. From January to September, the R&D cost rate fell 7 percentage points year-on-year; marketing-side companies' deep industry cultivation, market decline, and channel expansion strategies were effectively implemented, and the sales expenses rate for January to September fell 0.95 percentage points year on year.

Profit forecast: We expect the 2023-2025 EPS to be 0.36/0.45/0.56 yuan, respectively, and the corresponding PE for 2023-2025 to be 25.94/20.81/16.72 times, respectively.

Risk warning: New business development falls short of expectations, downstream customer demand falls short of expectations, and the competitive landscape in the industry is intensifying.