Event: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 0.918 billion yuan (yoy -5.07%), net profit due to mother 0.016 billion yuan (yoy +29.09%), after deducting non-return net profit of -0.004 billion yuan (yoy -140.74%). Looking at a single quarter, 2024Q3 achieved revenue of 0.28 billion yuan (yoy -36.31%), net profit due to mother 0.021 billion yuan (yoy -14.56%), after deducting non-attributable net profit of 0.008 billion yuan (yoy -64.66%).

Profit statement: 1) On the revenue side, 2024Q3's revenue in a single quarter was -36.31% year-on-year, mainly due to a decrease in sales revenue from the urban governance business. 2) Profitability side: 2024Q3 net profit not attributable to mother in a single quarter was -64.66% year-on-year, mainly due to a decline in profit due to a decrease in sales revenue in the field of urban governance and more preparation for asset impairment in the current period. R&D expenses for the first three quarters of 2024 were 0.105 billion yuan, +15.01% year-on-year, and 11.40%, +1.99pct; in a single quarter, 2024Q3 R&D expenses were 0.036 billion yuan, +16.46% year-on-year, and R&D expenses were 12.95%, +5.87pct year-on-year.

It shows that the company continues to increase investment in R&D to lay the foundation for future business development.

Cash flow statement: Net cash flow from operating activities in the first three quarters of 2024 - $-0.502 billion, mainly due to a decline in cash received from sales of goods and provision of services from the beginning of the year to the end of the reporting period.

1. Traffic management in civil aviation: Continue to consolidate the leading position in civil aviation management, increase marketing efforts in the airport sector, focus on building a low-altitude flight service system, and form a “high-altitude - low-altitude - ground” integrated development pattern. Build core products in the low-altitude field and promote the implementation of benchmark projects, focusing on the flight management platform to accelerate the development of low-altitude “Tianmu” series products, forming strategic cooperation with more than 20 provinces and cities including Beijing, Shanghai, Chongqing, Jiangsu, Anhui, Guangzhou, Nanjing, Suzhou, and Zhuhai, and achieving phased results in some regions to empower the low-altitude flight service guarantee system.

2. Urban road traffic management: Lay out the integrated construction of vehicle road clouds and continue to promote the national market.

The vehicle road cloud integrated hyperconvergence terminal product “Intelligent Core” was released, and integrated solutions such as roadside holographic sensing, V2X information communication, and cloud control platforms have been implemented. Projects in Nanjing, Chengdu, Dongguan, Korla and other places have been implemented to provide “vehicle-road cloud integration” related informatization services to Nanjing, Nantong, Chongqing, Zhuzhou and other places.

3. Urban governance: The smart city digital platform product “Cloud Mirror” has been released to accelerate the transformation of digital intelligence and promote the valuable application of data elements.

Investment proposal: The company is deeply involved in the three major sectors of civil aviation management, urban road traffic management, and urban governance to seize new industrial opportunities such as “low altitude”, “vehicle road cloud integration”, and “data elements”. As a leader in the civil aviation management system, the company enjoys the logic of domestic substitution and industry expansion; the small and medium-sized airport business is expected to open up 10 billion market space; the low-altitude economy has risen to the height of a national strategic emerging industry, and the trillion new market drives the company's business growth. We expect the company's net profit to be 0.172, 0.237, and 0.332 billion yuan respectively in 2024-2026, with corresponding PE being 104X, 75X, and 54X respectively, maintaining the “buy” rating.

Risk warning: The development of small and medium-sized airports falls short of expectations; the expansion of civil aviation management business falls short of expectations; low-altitude economic development falls short of expectations.