Event summary: The company released the third quarter report. From January to September '23, the company achieved revenue of 3.192 billion yuan, -2.77%, net profit of 350 million yuan, +0.87%, net profit of 341 million yuan, +0.07%, net cash flow from operating activities - 449 million yuan; the split of 23Q3 achieved revenue of 953 million yuan, -3.09% year-on-year, net profit of 88 million yuan, -5.54%.

Q3 Gross profit improved, credit impairment increased, and operating cash flow was under pressure. 23Q3 The company's gross margin/net profit margin was 36.79%/9.57%, year-on-year +4.98pct/-0.14pct, and -3.14pct month-on-month, -3.14pct/-3.16pct. On the cost side, the sales/management/R&D/finance expense ratio was 5.32%/12.37%/4.89%/-0.62%, year-on-year, +1.04pct/-0.96pct/-0.99pct/-0.58pct. Expense control was good, management and financial expenses were reduced. Q3 calculated credit impairment losses of 57 million yuan, an increase of 39 million yuan over the previous year, and bad debts lowered the net interest rate level. In terms of capital, the 23Q3 company received 769 million yuan in cash, a decrease of 271 million yuan in inflows over the previous year, and achieved net cash flow from operating activities of -189 million yuan, -380.98% over the same period last year.

Policies are favorable to the digital development of highways, and AI-enabled efficiency has surged. In September of this year, the Ministry of Transport issued “Opinions on Accelerating the Construction and Development of Smart Highways”, which requires that starting in June 2024, in principle, BIM design results should be submitted for newly started national highway projects to benefit enterprises with strong positive design and digital capabilities. According to the company's official website, the company launched a VR Road road simulation driving system this year, which can directly import 3D models derived from EICAD and AI Road to achieve digital collaboration. Furthermore, the company has developed an “AI Genie” based on Chat GPT, which can be embedded into the AiRoad rapid plan design system, increasing the efficiency of engineering bidding and engineering stage design by more than 10 times, and increasing overall efficiency by more than 30%. In the third quarter of this year, the company issued 400 million yuan of convertible bonds, of which 280 million yuan will be used for innovation center project construction, further improving the company's knowledge platform, data platform, innovation platform, and incubation platform, and promoting deep digital empowerment.

Breakthroughs have been made in new energy projects, and overseas business continues to develop. In terms of new energy, the company undertook distributed photovoltaic power generation projects in the Huai'an Xingang operation area, and explored the integration of energy transmission to create photovoltaic scenarios for service areas including building photovoltaic curtain walls (BIPV), photovoltaic carports, and energy storage systems. In September of this year, the company won the bid for the “Three Gorges Energy 100MW Yuguang Complementary Photovoltaic Power Generation Project in Wuwei City, Anhui Province”, which is the company's first fish-light complementary type project, achieving a new breakthrough in the field of new energy. In terms of regional development, the company adheres to the “going global” strategy, is based in Jiangsu, and faces the world. In October of this year, the company set up a wholly-owned subsidiary in Singapore to seize RCEP opportunities and accelerate the development of the ASEAN market.

Investment advice

Considering the uncertainty of the current macroeconomic environment, we lowered the company's 2023-2025 revenue forecast of 60.39/64.34/6.923 billion yuan (originally 62.59/68.69/7.589 billion yuan), lowered net profit of 7.08/7.60/827 million yuan (previously 7.55/8.48/943 billion yuan), and EPS 1.04/1.11/1.21 yuan (original 1.10/1.24/1.38 yuan), corresponding to the closing price of 7.87 yuan on November 10, 9.19 /8.57/7.87xPe Maintain a “buy” rating.

Risk warning

Demand falls short of expectations, software product market expansion falls short of expectations, systemic risks.