Events: The company achieved revenue of 1,540 billion yuan in the first three quarters of 2023, up 20.28% year on year; net profit of 107 million yuan, up 34.24% year on year; net profit after deducting 106 million yuan, up 32.20% year on year.

Operating income grew steadily, and Q3 profit increased sharply in a single quarter. In Q3, the company achieved operating income of 488 million yuan, an increase of 38.76% over the previous year; realized net profit of 23 million yuan, an increase of 129.13% over the previous year; realized net profit of 23 million yuan deducted from non-net profit, an increase of 163.48% over the previous year, and achieved a high level of prosperity on the profit side. The company's net cash flow from operating activities in the first three quarters was -229 million yuan, compared to 79 million yuan in the same period last year, mainly due to an increase in cash purchased goods and received from labor payments during the current period. As of September 30, 2023, the monetary capital in the company's current assets was 726 million yuan, compared to 325 million yuan at the beginning of 2023. The sharp increase in monetary capital was mainly due to the receipt of fixed capital increases.

Gross margin has remained stable, and R&D investment has increased. The company's gross margin for the first three quarters was 26.02%, with a year-on-year change of -0.10pcts; in the Q3 quarter, the company's gross margin was 24.51%, with a year-on-year change of -1.34 pcts. The gross margin remained stable and within a normal fluctuation range. The company's expenses for the first three quarters were 13.20%, with year-on-year changes of -0.42pcts. Among them, sales, management, and R&D expenses were 2.84%, 6.02%, and 4.34%, respectively, with year-on-year changes of -0.34pcts, -1.01pcts, and +0.93pcts. R&D expenses for the first three quarters were 67 million yuan, an increase of 53.23% over the previous year, mainly due to the company's increased investment in R&D.

Consolidate grassroots governance and digital city business, and strengthen ecological cooperation. 1) Grassroots governance business: The company actively promoted the construction of grass-roots governance systems, created digital benchmark projects such as Hangzhou Liuyuan Street, Hangzhou Qianjin Street, and Chengdu Guyi Street, etc., and promoted the continuous replication and decline of benchmark cases. At the same time, it established stable partnerships with the three major domestic operators, Huawei, and Alibaba and other leading cloud manufacturers. 2) Digital city business: In the field of smart transportation, the company deeply develops global traffic AI governance, full life cycle management of transportation assets, and linked applications of intelligence, and construction of integrated digital management services for smart traffic management. In the field of smart health, the company continues to explore the national market area based on the original medical market region, has successively won bids for construction projects involving more than 10 hospitals, and continues to cooperate with Huawei to develop inland and overseas markets.

Profit forecast and investment advice: Net profit from the mother is expected to be 1.97/2.60/304 million yuan in 2023-2025, maintaining the “increase in holdings” rating.

Risk warning: Downstream customer budgets and repayments fall short of expectations; risk of competition in the interbank market; risk of technology development falling short of expectations.