Event Overview: The company released its report for the third quarter of 2024. 24Q1-Q3 revenue 0.449 billion yuan, +10.80% YoY; net profit 9.9565 million yuan YoY, -86.78% YoY; in a single quarter, 24Q3 revenue 0.199 billion yuan, YoY -2.03%, +53.69% month-on-month; net profit after deducting non-return to mother 4.8679 million yuan, YoY -87.85%, +136.15% month-on-month; gross sales margin of 21.45%, net profit margin 2.52%; single third quarter Gross sales margin of 12.9%, -21.01 pct year on year, -13.63 pct; net sales margin 4.77%, -14.44pct year on year, +16.18pct month-on-month; the decline in the company's gross margin and net margin was mainly due to lower gross margin of PV new energy projects, leading to a decrease in overall gross margin; a year-on-year increase in superposition management and R&D expenses, a year-on-year decrease in repayment conditions, and an increase in credit impairment loss accrual.

Fiscal policy has been strengthened, and landscape lighting is expected to enter an upward cycle. According to the company's semi-annual report, the main revenue of the landscape lighting business was 0.249 billion yuan, +23.93%, recovering well after falling revenue due to the impact of the Shanghai epidemic in 2022, and has maintained a positive year-on-year growth trend; even this year, against the backdrop of local financial pressure, 24Q1-Q3 revenue maintained a positive year-on-year increase of more than 10%, and Q3 showed a sharp increase of 54% month-on-month in a single quarter. We believe that in 24Q4, urban landscape lighting is expected to be stimulated and released as municipal construction led by a strong government; plus The fourth quarter is the final quarter of the year, and demand for landscape lighting projects under construction increased markedly, and is expected to achieve considerable performance growth in 24Q4 and 2025. The influence of the company's products gradually expanded. 24Q3 planned to implement a series of core events and lighting experiences at the main venue of the first Shanghai International Light and Film Festival (Global Landscape Lighting Industry Exhibition and Shanghai Landscape Lighting Achievements Exhibition) and the Yangpu, Putuo and Pudong branch venues, giving full play to the company's excellent creative planning and project implementation service capabilities, attracting more than 0.16 million visitors. The company has obtained special grade A qualifications for lighting engineering design. As of September '24, the company had a total of 94 patents and 80 software copyrights. The market size of the industry exceeds 100 billion yuan, and the company's market share is less than 1%. Demand increased after local government financial pressure was relieved. Coupled with the company's many years of deep technical cultivation and experience accumulation in the industry, the company's main business ushered in an upward inflection point.

With the support of the high-quality assets of Holovis in the UK, the entertainment sector has reached a new level. Holovis in the UK is the world's leading provider of immersive experience solutions. It has branches in Hinckley, UK, Orlando, USA, and Abu Dhabi, UAE. Customer cooperation covers a wide range of areas. Holovis in the UK maintains long-term partnerships with industry giants such as Universal Studios, Merlin Entertainment, Sea World, Norwegian Cruise Line NCL, Netflix, Saudi Entertainment, etc., and continues to cooperate to innovate immersive and mixed reality experiences on a global scale. We believe Holovis will present potential growth opportunities for the company. (1) The purchase transaction price is low, only 0.52x PS. We think the purchase price is relatively cheap. (2) By absorbing British Holovis and its technical team, the company's overall design and technology research and development capabilities will be dramatically improved, while integrating the global market customers and IP resources accumulated by British Holovis, the company will rapidly expand its global sales and service network. (3) Judging from the revenue assessment, the first trading period is equivalent to a 69% year-on-year increase compared to 2023, and the second trading period assessment nearly doubled by 99%. The acquisition will bring huge room for growth to the company and is expected to achieve exponential revenue growth in digital entertainment.

The distributed photovoltaic EPC project won the bid of 0.27 billion yuan, and new energy sources have entered a new stage. The company entered the new energy sector in 2020 and established Shanghai Quanze New Energy in July of that year; in December 2022, the company announced that it plans to cooperate with Dalian State-owned Capital Management and Operation Co., Ltd. to jointly invest 0.45 billion yuan to establish Dalian Guoheng New Energy. Roman Co., Ltd. holds 35% of the shares. The subsidiary will participate in the investment, construction and operation management of the “Green Power Lights Up Dalian” project; in August 2024, Dalian Chengyu Construction Engineering, a subsidiary of Quanze New Energy, signed separate distributed photovoltaic project EPCs with enterprises belonging to Luchuang Capital The contract uses the roof of the logistics industrial park and uses the “spontaneous use, surplus electricity Internet” model. The total installed capacity reached 80 MW, and the total EPC cost is estimated to be 0.27 billion yuan. This project is an important milestone in the development of the digital intelligence new energy sector to the national layout and development, and is also an important node for the company to achieve the “three major sectors of one core, two wings”.

Investment advice

We maintain our 2024-2026 revenue forecast of 1.057/1.597/2.019 billion yuan, net profit forecast of 0.091/0.161/0.206 billion yuan, corresponding EPS 0.83/1.47/1.87 yuan, corresponding to the closing price of 26.86 yuan on October 29, 32.28/18.32/14.33x PE, maintaining a “buy” rating.

Risk warning: operating risk after asset acquisition; customer funding falls short of expectations: systemic risk.