Incident: The company released its annual report for the third quarter of 2024. In the first three quarters of 2024, the company achieved revenue of 0.918 billion yuan, a year-on-year decrease of 5.07%; net profit to mother was 0.016 billion yuan, an increase of 29.09% over the previous year.

The decline in business in the field of urban governance and depreciation of accrued assets led to a brief pressure on performance, and gross margin increased sharply in the third quarter of a single quarter. In the first three quarters of 2024, the company achieved operating income of 0.918 billion yuan (-5.07%); net profit to mother 0.016 billion yuan (+29.09%). Looking at a single quarter, 24Q3 achieved revenue of 0.28 billion yuan (-36.31%); net profit to mother was 0.021 billion yuan (-14.56%), mainly due to a decrease in sales revenue in the urban governance sector in the third quarter and more preparation for asset impairment. As of September 30, 2024, the company confirmed a total of 37.5526 million yuan in credit impairment losses and asset impairment losses in the first three quarters of 2024, of which credit impairment losses were 38.032 million yuan and asset impairment losses were -0.4793 million yuan.

In 24Q3, the company achieved a gross profit margin of 38.57%, a year-on-year increase of 14.25pct, and a significant increase in gross margin.

Further increase investment in R&D and continue to control costs. The company's annual expense ratio for the first three quarters was 26.91% (+1.16pct), with sales/management/R&D expenses ratios of 7.52% (-0.34pct)/8.71% (-0.29pct)/11.4% (+1.99pct), respectively. The company's 24Q3 R&D expenditure rate was 12.95%, an increase of 5.87pct over the previous year.

A strategic cooperation agreement was signed with the Wuxi Municipal Transportation Bureau to speed up the national low-altitude project layout. On October 26, at the 2024 Taihu Bay Wuxi Low Altitude Economic Innovation and Development Conference, the company and the Wuxi Municipal Transportation Bureau held a strategic cooperation agreement signing ceremony. According to the agreement, the two sides will cooperate on the low-altitude flight service platform in Wuxi. In the future, the company will also support the Wuxi system to promote the construction and operation of low-altitude platforms, the formulation of relevant system standards, and the creation of low-altitude scenarios. Currently, the company is actively promoting the implementation of projects in more than 20 provinces and cities across the country, and has achieved phased results in regions such as Zhuhai and Wuxi.

Profit forecast: The company's performance was briefly pressured by factors such as depreciation of calculated assets, but the company's future order expectations are sufficient and will fully benefit from the wave of low-altitude economic infrastructure construction. The company's revenue for 2024-2026 is estimated to be 2.014/2.433/3.01 billion yuan; net profit to mother is 0.176/0.229/0.298 billion yuan; and PE is 101/78/60X, maintaining the “recommended” rating.

Risk warning: risk of macroeconomic fluctuations, risk of increased industry competition, risk of seasonal fluctuations in performance, etc.