The company achieved revenue of 0.169 billion yuan (yoy -21.00%) in the first three quarters, net profit to mother of -69.45 million yuan (yoy +27.77%), after deducting non-net profit of -74.51 million yuan (yoy +25.00%). Among them, Q3 achieved revenue of 51.126 million yuan (yoy -52.30%) and net profit to mother of -27.67 million yuan (yoy +24.26%). The company's revenue in the first three quarters was under pressure, mainly affected by the year-on-year decline in revenue from the media and culture business. Considering the continued expansion of smart cockpit, industrial and satellite businesses, Q4 revenue is expected to return to positive growth. I am optimistic about the increase in profitability brought about by the company's business upgrade. It is expected to turn losses into profits and maintain “purchases” in '25.

Profitability continues to improve, and is expected to turn a loss into a profit in 25 years

The company's gross margin for the first three quarters was 36.74%, +1.53pct year-on-year. The increase in gross margin was mainly due to a decrease in the share of traditional integration projects and a gradual increase in the share of product business. We believe gross margins are expected to continue to improve in 24-26 as the business is upgraded. The company's sales/management/R&D expenses rate for the first three quarters was 13.94%/17.34%/55.95%, -0.17pct/-0.79pct/+1.36pct year-on-year. The company is increasing investment in research and development, focusing on technological innovation in the three major fields of media culture, industry and satellite, and intelligent connected vehicles.

The industrial and satellite business has broad prospects, and the company's product technology is leading

As one of the few domestic enterprises with both “video coding and transcoding” and “intelligent AI recognition” technology, the 5G edge computing video compression terminal products created by the company are widely used in complex scenarios with strict communication conditions such as satellite communications, electricity, rail transit, and towers. Among them, intelligent sensing compression technology can supercompress high-definition video by 10-100 times, and AI image quality enhancement technology can make video quality close to or even surpass the original video. We believe that the company's video compression terminals are expected to fully benefit from the accelerated construction of application scenarios such as satellite Internet and low-altitude economy, and the industrial and satellite business is expected to accelerate expansion.

The release of smart cockpit products is expected to benefit from cars going overseas

The company's smart cockpit business has reached cooperation with domestic and foreign car companies such as BYD, Geely, Mercedes-Benz, Porsche, NIO, SAIC Motor, etc., and the mass production volume of delivered models continues to increase. In October 2024, the company appeared at the China Mobile Global Partnership Conference and jointly launched the “Auto Enterprise Ecology Goes Overseas Initiative”. We believe that the company's smart cockpit business is expected to fully benefit from the overseas layout of domestic car companies.

Investment advice: Target price of 32.32 yuan, maintain “buy”

Taking into account the slow progress of the media and culture business, the revenue forecast was lowered. Revenue for 24-26 is 0.349, 0.449, and 0.609 billion yuan, respectively (previous values were 0.412, 0.545, and 0.732 billion yuan). Considering that the company's business structure continues to be optimized, and the share of commercialization continues to rise, maintaining expectations of rising gross margin and falling cost ratio, EPS is expected to be -0.31, 0.29, and 0.88 yuan (previous values were -0.08, 0.05, 0.32 yuan), respectively. Referring to the comparable company's average valuation (Wind) 25E 8.1x PS, the target price is 32.32 yuan (previous value 24.35 yuan), maintaining the “buy” rating.

Risk warning: The commercialization of R&D results falls short of expectations, and the expansion of business scenarios falls short of expectations.