Event: The company released its report for the third quarter of 2023. The company achieved revenue of 578 million yuan in the first three quarters, -18.64%; net profit of 54.47 million yuan, -57.81% of the previous year; net profit attributable to the parent company after deductions was 48.37 million yuan, -62.04% year-on-year.

First three quarters of 2023: Management expenses are basically stable. Expecting subsequent marginal improvements. On October 30, the company released its report for the third quarter of 2023. The first three quarters achieved revenue of 578 million yuan, -18.64% year-on-year; net profit of 54.47 million yuan, -57.81% of the previous year; net profit after deduction of 48.37 million yuan, -62.04% year-on-year. The company's revenue and performance are under pressure in the short term, mainly due to the fact that some models of microwave devices are affected by the stepwise price reduction in user demand throughout the industry and the military product tax system reform, which has led to a decline in the gross margin of microwave devices and an increase in the share of product revenue with low gross margin. The gross profit margin for the first three quarters was 27.10%, y-9.95pct; net sales profit margin was 9.43%, y-8.76pct; first-quarter expense ratio was 13.35%, yoy +1.62pct; sales/management/R&D/financial expenses were 2.06%, 7.09%, 5.29%, and -1.09%, with year-on-year changes of +0.59pct, +0.93pct, +0.16pct, -0.06pct.

2023Q3 single quarter: The company closely followed customer needs and attached great importance to R&D companies achieving revenue of 140 million yuan in 2023Q3 in a single quarter, -25.67% year-on-year, -48.42%; net profit of 6.8817 million yuan, -63.09%, -74.65% month-on-month; net profit after deduction of 5,0202 million yuan, -72.21% year-on-month, -78.15% month-on-month. Q3 gross profit margin 32.16%, year-on-year +5.01pct, +9.84pct; net profit margin 4.91%, y-4.99pct, month-on-month -5.07pct; Q3 period expense ratio 20.19%, year-on-year +7.63pct, +10.64pct, sales/management/R&D/finance expense ratio was 2.77%, 10.48%, 7.63%, -0.69%, year-on-year, respectively, +1.41pct, +2.52pct, +3.65pct, +0.05pct, ring The ratio changed by +1.2pct, +5.3pct, +3.3pct, and +0.9pct, respectively. The company closely follows customer needs and attaches great importance to R&D. The total R&D investment in the third quarter of 2023 was 10.7047 million yuan, compared with 7.424 million yuan in the previous period, an increase of 44.19% over the previous period. The main reason is that the company's R&D investment has changed dynamically according to industry development and customer needs, and R&D projects and expenses have increased in the single third quarter.

High-tech enterprises in microwave devices, rapid development of vacuum+solid state

The company's microwave device business mainly includes vacuum devices and solid-state devices, which are the core of military equipment systems such as phased array radar, microwave communication, and electronic warfare. China's vacuum devices present a competitive pattern of “two factories, two companies”. The company's electric vacuum products, continuous wave tubes, magnetrons, etc. occupy an important position in the industry. The company's microwave business is vacuum+solid-state two-wheel drive. As digital array radars and low-orbit satellites continue to develop, the microwave business may continue to grow rapidly.

The nuclear industry is developing rapidly, and the company is expected to benefit from core benefits

The company's products in the nuclear industry mainly include special pumps, valves and ITER supporting equipment for the nuclear industry. It is one of the few domestic enterprises involved in the R&D and manufacture of nuclear industry equipment and pressure vessel monitoring and control components, and its technical level is at the leading level in China. The irradiation-resistant small valve project of the Ministry of Science and Technology undertook by the company has now successfully completed the development of DN3 small valves and achieved batch delivery for use. At present, China has completed the leap from mainly second-generation nuclear power technology to self-mastering third-generation technology and advancing to fourth-generation technology. The fusion test project is progressing steadily. The company actively participated in the international ITER project. The deflector developed by the company has been used in fusion projects such as HL-2M in China. As controllable nuclear fusion technology continues to mature, demand for key components is expected to continue to increase. At the same time, as the company's fund-raising projects reach production, the company is expected to usher in rapid development in the field of nuclear industry.

Profit forecast and rating: We believe that the company is deeply involved in the field of microwave devices and has formed a two-wheel drive for vacuum devices and solid-state devices. In particular, it has remarkable advantages in the field of vacuum devices. As electronic confrontation and low-orbit satellite construction advance, the microwave device business is expected to continue to develop. At the same time, the development of the nuclear industry is accelerating, and demand is strong. However, recently, the company has been affected by hierarchical price cuts from customers and military product tax system reforms. We predict that the company's net profit from 2023-2025 will be 1.30/3.04/458 million yuan (previous value: predicted net profit of 504/751 million yuan in 23-24), and the corresponding P/E is 74.71/31.99/21.26X, maintaining a “buy” rating.

Risk warning: the risk of fluctuations in the military goods business, the risk that the development of new models of equipment does not meet expectations, the risk that the progress of fund-raising projects and earnings will not meet expectations, and the risk that the business conditions and profitability of subsequent target enterprises will not meet expectations, etc.