The revenue growth rate recovered in the third quarter, and operations improved quarter by quarter. In the first three quarters of 2024, the company's revenue was 4.634 billion yuan (-3.63%), net profit due to mother was -0.58 billion yuan (-6.25%), and net profit not attributable to mother was -0.651 billion yuan (-8.18%). There was a gradual improvement in the quarter, with Q3 revenue of 1.926 billion yuan (+2.77%), and the growth rate recovered; net profit to mother was 0.012 billion yuan, after deducting non-return net profit of 0.004 billion yuan, all of which increased year-on-year.

The effect of fee control continues to show, and contract debt data is positive. The company's sales, management and R&D expenses changed to -9.56%, +1.73%, and -5.78%, and overall cost control was good. The contract covered $1.445 billion, an increase of 11.58% year over year. The increase in upstream raw material prices in the first three quarters affected gross margin and cash flow. The company's gross profit margin for the first three quarters was 60.60%, down about 4.5 percentage points from last year. The increase in the price of raw materials such as upstream storage has had a big impact on the company, because the company delivers all-in-one equipment such as hyperconvergence, and storage is one of its important cost links. In order to cope with the rise in the prices of some raw materials, the company also adopted strategies such as early stocking. As a result, inventory and advance payments all increased significantly, which also affected the company's cash flow to a certain extent.

Continue to innovate and actively invest in the field of AI. At the company's recent new product launch, Convinced launched a new distributed storage EDS 520, a secure GPT4.0 that enables dynamic and static data classification and automatic data risk analysis, and distributed storage EDS with excellent reliability and AI ransomware protection capabilities. With the continuous promotion of data element policies and industry, data classification and classification have become just what is needed. The company's large security GPT data security model has greatly improved the efficiency of classification classification. Compared with the traditional small model, the accuracy rate of static classification has been increased from 60% to 90%, and the marking efficiency has increased 40 times. Manually only need to set classification standards, and the entire marking process is completed automatically by the model. On the other hand, the latest version of EDS has greatly improved the performance and reliability of the system through a self-developed architecture, can achieve seamless data switching, quickly resume business within 3 to 5 seconds, and integrates intelligent AI anti-ransomware functions.

Data security and Xinchuang continue to bring new market opportunities. The “Regulations on the Administration of Network Data Security” will be officially implemented in January '25. It is a measure of data security from popularity to implementation in recent years. It is also an important prerequisite for the application of data elements in the future, and will drive the rapid growth of the data products market. On the other hand, the domestic innovation industry continues to be catalyzed, and related financial support is gradually increasing. As VMware's voice in the domestic market weakens, it has also brought broad space to replace the company's virtualization products domestically.

Risk warning: Macroeconomics affects IT spending; industry competition intensifies; new business development falls short of expectations.

Investment advice: Maintain profit forecasts and maintain a “better than the market” rating. The estimated revenue for 2024-2026 is 8.031/8.808/10.007 billion yuan, with growth rates of 5%/10%/14%, respectively, and net profit to mother of 0.34/0.573/0.764 billion yuan, corresponding to current PE of 78/47/35 times. The company has shown a quarterly recovery trend and maintained a “superior to the market” rating.