The comprehensive gross margin index has exceeded 40%, and the net operating cash flow index continues to improve. The company released its 2023 annual report. The company achieved revenue of 1,213 billion yuan in 2023, a year-on-year decrease of 20.48%; net profit to mother was 134 million yuan, a year-on-year decrease of 47.22%; net profit after deducting non-return to mother was 95 million yuan, a year-on-year decrease of 56.77%.

In 2023, there was no shortage of favorable policy factors in the company's main business areas such as the digital economy, digital governance, and data elements. The market outlook was relatively optimistic, and customer demand was strong, laying an important foundation for the company's sustainable development; during the economic recovery period, due to the impact of the industry environment, the company's customers were mainly concentrated on various government departments or their authorized agencies, subordinate enterprises and institutions, etc., and factors such as delays in the acceptance of some projects and delays in bidding for some projects caused revenue confirmation to fall short of expectations. Production and operation had some adverse effects, and directly led to a year-on-year decline in the company's revenue and profit in 2023. In 2023, in the face of the complex market situation, the company strives to cultivate core competitiveness and improve core capabilities, strive to expand new markets to overcome the impact of short-term difficulties, and strive to prevent major financial and management risks. Although operating income and profit have declined to a certain extent, the comprehensive gross margin index reflecting the company's core competitiveness has exceeded 40%, achieving a steady increase; the operating net cash flow index reflecting the quality of the company's business continued to improve, with a sharp increase of 145.33% over the previous year. At the same time, the company's marketing and localization service network construction have been further improved, and a localized service system based on provinces has basically been established to closely cooperate with customers. At present, it has achieved broad and deep coverage of the national market, and has promoted a continuous increase in the output value of individual customers and the added value of projects on this basis.

2024 “One network control” or accelerated development, the company's goal is “steady, moderate and fast progress”. Looking ahead to 2024, with a new round of in-depth reform of local government agencies, provincial and municipal data bureaus will be fully established, and constructing a new data-driven network management model will surely be an inevitable trend for all regions to explore digitally empowering urban governance.

Digital governance will also continue to play a leading role as a pioneer in “One Network Management”, continuously enrich the new connotation of “One Network Management”, continue to innovate the new “One Network Management” model, continue to enrich new “One Network Management” products, and use data governance work as a starting point to support departments to develop collaborative and innovative application scenarios based on comprehensive data convergence and intelligent analysis by promoting multi-source data integration, big data analysis platforms and algorithm warehouses, and supporting and leading the government's digital reform. Based on the current economic situation and the actual situation of the company, in 2024, Digital Government proposed a steady, medium and fast-moving business strategy to consolidate, enrich and enhance the core business, continue to maintain high market competitiveness, and further improve project quality, while clarifying four fast forward directions: one is to transform the urban governance data element operation service model and further cultivate the data element market; the second is to fully empower core products, maintain the leading product level of the industry, and continuously improve product application capabilities and help government customers improve the efficiency of digital work; the third is to seize key market development opportunities with new levels of productivity It promotes the rapid development of one-network management and urban lifeline business, and strives to achieve more and larger projects to promote high-quality revenue growth; fourth, promote new business development through technological innovation, actively participate in construction and service work in new industries such as the low-altitude economy represented by drones and urban smart terminals represented by unmanned vehicles, and strive to create a new growth curve.

The company launched the “Starship Plan” to actively lay out the low-altitude economy. In 2023, in line with the development trend of the low-altitude era, Digital Communications launched a new “City-wide Network” multi-purpose urban spatial data operation model, the “Star Kwai Project”. Based on the “Sky and Space” integrated inspection method, the “Starlight Project” establishes a comprehensive automated inspection network for unattended airports for cities (one network for the whole city), and develops AI intelligent recognition algorithms based on multi-phase satellite images and drone images to meet the needs of different business inspections in various departments such as urban planning, construction, management, water, environmental protection, emergency, etc., and at the same time realize dynamic update of urban spatial data. The “Xing Kui Project” “opens doors and innovates” around the information technology difficulties that need to be solved in urban spatial data. Through the construction of a “1+5+2” system service platform, that is, 1 large integrated command and dispatch screen, 5 operation systems: flight control operation system, intelligent image analysis system, holographic intelligent sensing platform, CIM update management system, CIM service sharing, 2 basic support platforms: unified user center and operation monitoring center to quickly and comprehensively perceive changes in geographical information and accurately identify urban spatial information on a single screen and data resources One-stop service. Through deep integration with existing businesses, the “Sky, Earth and Sky” integrated data sensing system and intelligent networking system in the field of urban governance were initially constructed, continuously leveraging the long-term driving force of scientific and technological innovation, and leading the further development of urban governance concepts and models. In 2023, the company will continue to increase R&D investment in the “Xingkui Project”, establish a monthly drone data update model, and create a long-term urban data update mechanism. Achieve high-frequency monitoring of key regions and key urban areas, provide refined services such as topographic data updates, 3D data updates, and CIM data updates; establish a quarterly satellite data update model to extract and update information on changes throughout the city, and enhance timely perception of urban updates. The mature and powerful algorithm library is continuously optimized, and is widely used in engineering construction, municipal facilities, river and lake monitoring, agriculture and forestry resources, emergency safety, land resources, etc., and has accumulated nearly 30 application scenarios that focus on urban governance, helping to enhance the ability to modernize urban governance. Through an integrated sky and ground collection platform and efficient AI algorithms, a rapid discovery mechanism for urban governance cases is formed. Through image recognition and comparison, maps are generated, early warning cases are discovered in real time based on maps, connected to urban governance business platforms, rapid detection and treatment of urban problems can be achieved, and urban governance capacity and level of governance are enhanced. At present, the company has provided low-altitude operation services to more than ten regions including Wenzhou, Hefei, Xuzhou, Guilin, Zibo, Yiyang, Yueyang, Huainan, Dongying, Zhangzhou, and Nan'an.

The low-altitude economy business has broad prospects and is expected to become an important development direction for the company in the future. As digital political communication takes root and implementation in various regions, the “Star Quo” will further sense the pulse of urban operation in real time, dynamically identify urban warning information, open up and enable a network management platform for urban operation, and achieve the efficient operation of urban governance.

At the same time, the company's Qi Ji driverless car has been promoted and used in more than 20 regions across the country, including an unmanned vehicle product matrix for various scenarios and uses. Through AI intelligent recognition algorithms and other technologies, it is expected to expand more applications in the low-altitude economy in the future. Massive diverse data collected by the unmanned vehicle+drone integrated inspection system is uploaded to the cloud data center in real time, and advanced artificial intelligence algorithms are used to conduct in-depth mining and intelligent analysis to form sharp insight and accurate prediction of potential problems in urban infrastructure, providing strong data support and scientific basis for city managers' decisions. It is foreseeable that the “Star War” will play an important role in promoting the optimization, upgrading and co-construction and sharing of urban digital public infrastructure in an integrated manner. According to preliminary estimates, the establishment of 10 unmanned airports in a 300-square-kilometer city (district) can help the government save more than 50 million yuan in the budget every year, based on providing multiple types of spatial data services and spatial change monitoring services to more than 10 departments every year. Facing the low-altitude economy, the company believes that on the one hand, it should maintain a positive attitude. Moving from the ground to three-dimensional space is the general trend; on the other hand, it is also necessary to have a pragmatic attitude. The process of developing the low-altitude economy cannot be achieved overnight. It must be based on a foundation and guided by application scenarios to steadily promote the development of the low-altitude economy. As a representative of a new quality of productivity, the low-altitude economy is moving towards a stage of implementation and inclusiveness. It is with such a low-altitude environment that the low-altitude economy can take off. In the past, using flights to solve commuting, medical care, and logistics in cities was still a beautiful imagination that stayed in people's minds, but now, the take-off low-altitude economy is spawning a trillion-level market. According to specific project estimates and local industrial layout, it is estimated that the scale of the industry will exceed 200 billion yuan in 2025. Facing an increasingly hot low-altitude economy, all regions are seizing opportunities and competing for layout, and various supporting regulations are also being implemented steadily. Guided by industrial planning and laws and regulations, I believe that with the continuous improvement of the software and hardware infrastructure and the continuous development and opening up of more application scenarios, the “low-altitude economy” will surely profoundly change the way people work and live in the future. We believe that the low-altitude economy industry is currently in a stage of rapid development, and the company currently has a certain first-mover advantage in this field. With the continuous advancement of the “Starlight Project”, the company is expected to become a new driving force for low-altitude economic development, and the low-altitude economy is expected to become an important development direction for the company in the future.

Profit forecasting and investment advice. We believe that the development of the low-altitude economy is gradually on the right track, and there is broad market space in the future. The company continues to expand its scope of application in the low-altitude economy and seize the “new market” of the low-altitude economy through the “Star Kwai Plan”, and the company's gross margin rises to 40% +, which indicates that the company's current business profit model has matured and is still improving. Against this background, the company's future performance is expected to enter a period of acceleration. We estimate that the company's net profit for 2024/2025/2026 will be RMB 348/4.52/555 million yuan, and EPS will be RMB 0.56/0.73/0.89, respectively, giving the 2024 dynamic PE 32-40 times, with a 6-month reasonable value range of 17.91-22.39 yuan, maintaining the “superior to the market” rating

Risk warning: Risk that policy implementation falls short of expectations and technology development falls short of expectations.