A national-level specialist and new “little giant”, a unique drone manufacturer and operator. 1) Main business:

The drone service business (drone flight service and data processing) and the drone system and intelligent defense equipment manufacturing business each account for about half of the revenue, and the drone service business accounts for about 60% of gross profit. 2) Drone service business: Drone anti-drug business accounts for a high proportion (accounting for 58% of this segment in '21), and space for secondary data development is being opened up. 3) Drone manufacturing business: The product matrix is rich, and the share of revenue by system (accounting for 60% of this segment in '21) exceeds that of the whole machine.

Core Highlight 1: Drones+data elements are expected to be replicated rapidly from anti-drug services to many fields under the low-altitude economic wave.

1. The company is a leading domestic drone anti-drug service provider: three major advantages build core competitive barriers. 1) First-mover advantage. The company is the first company in China to propose the use of drones to carry out drug prohibition and elimination business. It can accurately identify illegal cultivation of drug raw plants from aerial survey images. Currently, related business covers 27 provinces and involves more than 100 government customers. 2) Over 4 million square kilometers of images have been accumulated, and the annual increase is maintained at least 300,000 square kilometers. 3) Core algorithm iteration. 2. Drone flight service market: there is room for improvement in volume* and price. Taking anti-drug control as an example, the driving force behind the aerial survey area of flight services comes from the increase in drone penetration rate and the establishment of strategic partnerships with more anti-drug departments; the price is driven by improvements in comprehensive service capabilities, such as improved identification accuracy and iterative upgrades of core algorithms. Check that the company participated in some local anti-drug drone service projects in 23 years. The winning bid price was about 300 yuan/square kilometer, which is higher than the average disclosed by the company in 21 years (141 yuan), which means there may be room for improvement in the overall unit price. 3. Replicability of core competencies+the wave of low-altitude economy opens up room for imagination in many fields of replication from anti-drug services. 1) Core resources+core technology, with the possibility to expand into many fields. For example, the company has expanded from drone anti-drug services to resource investigation services. We believe that those that match its core competencies also include agriculture, forestry, plant protection, environmental monitoring, etc., and even in the future, we think it may be further used in more fields to combat illegal crimes. 2) The low-altitude economic wave may accelerate cross-sector expansion. 4. Flexible calculation. In terms of 500,000 square kilometers, every increase of 100 yuan/square kilometer will increase revenue by 50 million yuan, equivalent to 18% of the company's revenue in 23 years. Assuming that the average fee will increase to 300 yuan/square kilometer in the future and expand to more scenarios, such as the aerial survey area to 1 million square kilometers (currently about 500,000 square meters), corresponding revenue of 300 million yuan, exceeding the 2023 performance report revenue (270 million yuan).

Core Highlight 2: Multi-scene intelligent riot control devices may bring new profit growth points. 1. The Wasp T800, a multi-scene intelligent riot control device independently developed by the company, has the characteristics of being compact, lightweight, and multi-purpose. It participated in events such as the China International Police Equipment Fair and the Abu Dhabi Defense Exhibition in 2023. As of the 3rd quarter of '23, products have been delivered to customers in some provinces and cities. As subsequent delivery and inspection work progresses in an orderly manner, it is expected to become a new efficiency growth point for the company. 2. We understand that the profit model of this riot control may be referred to as “printer+cartridge or shaver+blade”. It is based on handheld police equipment, and “bombs” with different functions can be viewed as “consumables”. “Bombs” include different functions such as high-speed tear generation, quick restraint, and remote electric shock. We refer to some of the winning bid announcements in '23. According to the calculation of more than 50,000 grass-roots police stations with a single configuration, the market demand scale may exceed 1 billion (simulated data only).

Financial characteristics: high gross profit/high net interest rate, heavy research and development. 1) The company has growth potential: the compound profit growth rate in the past ten years is about 26%; 2) Profit margin: gross margin has remained close to 50% in recent years, net interest rate has maintained 30% +; the balance ratio is extremely low (3.7% in 23Q3). 3) Focus on R&D: R&D expenses are increasing, and 10 major projects are under study.

Investment advice: 1) Profit forecast: We expect the company to achieve net profit of 0.82, 1.07 and 140 million in 2023-25, respectively, with growth rates of 31% and 30.6% respectively in 24-25, corresponding to EPS of 0.22, 0.29 and 0.38 yuan respectively, and PE of 43, 33 and 25 times, respectively. 2) Investment suggestions: We selected A-share drone listed companies Zongheng Co., Ltd. and China Drone (also a science and technology innovation board company) to compare. According to Wind's unanimous expectations, the 24-year PE corresponding to Zongheng and China drones were 52 and 66 times, respectively, and the PB was 7.9 and 4.3 times, respectively. Guandian Defense was significantly lower than that of comparable companies. We covered and gave a “Recommended” rating for the first time.

Risk warning: Technology iteration risk, narrowing market space for anti-drug service business, intensifying competition in other flight service markets.