Incident: On October 25, 2024, the company released the 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 0.568 billion yuan, a year-on-year decrease of 12.48%; net profit to mother -0.15 billion yuan, an increase of 3.39%; net profit after deducting non-attributable net profit of -0.162 billion yuan, an increase of 11.81% year-on-year. The results are in line with market expectations.

Key points of investment

Business optimization led to revenue pressure, and gross margin increased year on year: The company's revenue decreased year on year, mainly because the company actively reduced network optimization business with low gross margin, but domestic sales revenue for industrial network communication products increased 15.66% year on year, and revenue from industrial operating systems and related software services increased by 40.38% over the same period last year. The company stepped up structural adjustments and cost reduction efforts, and gross margin continued to improve. Overall gross margin increased by 6.76 pcts compared to last year. Among them, the gross margin of industrial network communication products increased by 10.69 pct, and the gross margin of industrial operating systems and related software services increased by 20.51 pct over the same period last year.

Expenses were properly controlled, and the loss margin was narrowed: From January to September 2024, the company increased cost control and cost reduction efforts, and made structural adjustments and optimization for unprofitable businesses, leading to an increase in sales expenses and management expenses. After eliminating this impact, the company's management expenses and sales expenses were basically the same compared to the same period last year, and showed a monthly downward trend. The company continues to promote the integration of network control and the in-depth layout of intelligent control technology in industrial scenarios, accurately focusing on key industries with clear requirements for intelligent applications such as semiconductors, clean energy, metallurgy, mining, and CNC machine tools. Demand for new products has increased significantly, and profit margins have increased significantly. From January to September 2024, the company's net profit without return to mother decreased the year-on-year loss by 21.71 million yuan.

Expenses are properly controlled, and losses have been narrowed: Hongdao Operating System (Intewell) has been used in the fields of chips, aircraft, high-speed rail, power grids, robotics, CNC machine tools, automotive electronics, etc. Intewell (Intewell) is currently the only operating system in China that has passed the four functional safety certifications of automobiles, industrial control, medical instruments, and rail transit. By 2027, complete the task of upgrading approximately 2 million sets of industrial software and 800,000 industrial operating systems. Dongtu Technology's Hongdao operating system technology is leading domestically, and has formed strategic cooperation with leading domestic semiconductor companies to jointly develop and supply domestic independent core semiconductor equipment control systems.

Profit prediction and investment rating: Industrial operating systems are related to national industrial safety and are an important direction for domestic substitution. According to the policy requirements of the Ministry of Industry and Information Technology, the opening up of a localized market for industrial operating systems, Dongtu Technology's products are leading domestically in technology and safety, and are expected to usher in accelerated development. However, due to slow progress in 2024, we lowered our 2024-2025 net profit forecast to 0.42 (previous value was 0.115 billion yuan) /0.086 billion yuan (previous value was 0.235 billion yuan), and the net profit forecast for 2026 was 0.152 billion yuan. Maintain a “buy” rating.

Risk warning: Policy promotion falls short of expectations; ecological construction falls short of expectations; technology research and development falls short of expectations.