Incident: The company announced that 2024Q1-3 achieved a year-on-year decrease of 15.66% in revenue of 2.692 billion yuan; achieved a 33.78% decrease in net profit of 0.232 billion yuan; and achieved a 33.32% decrease in net profit not attributable to mother of 0.227 billion yuan.

The pressure on traditional industries affected operations, and there was an improvement over the previous quarter in Q3. On a quarterly basis, the company's Q1-Q3 revenue was 0.79/0.871/1.031 billion yuan, respectively, with year-on-year changes of -9.48%/-36.27%/8.18%, and Q3 revenue recovered positive year-on-year; net profit to mother was 0.093/0.061/0.078 billion yuan, down 2.28%/63.47%/11.55%, respectively, and Q3 profit decline narrowed month-on-month; gross margin was 33.01%/39.43%/38.44%, respectively, year-on-year changes 1.17pct/-0.51pct/1.65pct. The company's operating scale contracted in the first three quarters, mainly due to pressure on the infrastructure and engineering design industry, which led to a slowdown in the company's acceptance of orders and project progress. Meanwhile, the company is determined to transform and develop, and has a layout and accelerated promotion in areas such as the low-altitude economy and vehicle-road cloud integration. With the recent release of “Certain Policies and Measures to Support the High-Quality Development of the Low-altitude Economy” by Wuxi City, relevant officials from the Ministry of Industry and Information Technology said at the 2024 World Intelligent Connected Vehicle Conference that they will further advance the “vehicle-road cloud integration” application pilot, etc., and such new quality sectors will accelerate implementation as a driving force for economic growth, and the company is expected to benefit first.

Gross profit margins have been rising steadily, and increased expense ratios are dragging down profits. 2024Q1-3's gross profit margin of 37.16% increased by 0.38 pct; the period expense ratio of 20.44% increased by 2.44pct, of which the sales/management and R&D/finance expense ratios were 6.35%/14.00%/0.09%, respectively, and increased by 1.31pct/0.76pct/0.37pct, mainly due to new business development; the asset and credit impairment loss ratio of 6.18% increased by 0.52 pcts; net profit margin to mother of 8.62% decreased by 2.36 pcts. The net cash outflow from the company's operating activities in the first three quarters was 0.612 billion yuan, an increase of 0.163 billion yuan over the same period last year; the revenue ratio increased 4.05 pcts from the current payment ratio of 80.93%; the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, accounts payable and notes, accounts payable and notes, accounts receivable and liabilities contracts were 42.5/4.29/3.8/1.15 billion yuan respectively, up -2.70%/-1.24% /- from the beginning of the year 3.24%/-9.11%.

Investment proposal: We expect the company to achieve operating income of 4.583/4.695/4.995 billion yuan and net profit to mother of 0.514/0.531/0.575 billion yuan in 2024-2026. The closing price on October 30 was 12.01/11.62/10.75 times PE, respectively, maintaining the “gain” rating.

Risk warning: the risk of macroeconomic fluctuations, the risk that policy progress falls short of expectations, and the market competition pattern deteriorates.