Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, operating income was 1.872 billion yuan, -3.49% year over year; net profit to mother was 0.149 billion yuan, +21.50% year over year.

Key points of investment

Revenue declined slightly year on year, and net profit to mother increased 21.50% year over year: the company achieved operating income of 1.872 billion yuan, -3.49% year over year in the first three quarters of 2024. The overall decline in revenue reflected pressure from the market environment, and demand for defense products did not grow as expected; however, the first three quarters of 2024 achieved net profit of 0.149 billion yuan, +21.50% year over year. Compared with the period of weak relative performance in the previous two quarters, an inflection point in performance was reached.

The third quarter results improved markedly, and I am optimistic about the fourth quarter results: First, the company promoted product delivery with high quality and efficiency by improving operating standards and adopting various measures to guarantee production progress, resulting in a 22.18% year-on-year increase in revenue for the third quarter of 2024 to 0.714 billion yuan. At the same time, gross sales margin remained stable, and gross profit increased by 42.9126 million yuan year on year. Second, the company's market in the field of electronic defense equipment has remained stable. Thanks to the continuous growth of China's defense investment, related performance has shown a steady development situation. In addition, the company's non-defense products are developing steadily in the stock market, with continuous breakthroughs in new market areas. In particular, under the strategic opportunity of localization and replacement, some products have achieved new applications, and some products have entered new markets, providing important support for the high-quality development of the company's non-defense business. Finally, the company increased investment in scientific research and technological innovation, and achieved breakthroughs and first applications of important core technologies in various business directions, laying a solid foundation for the sustainable development of the company's performance.

The company's assets are growing steadily, liabilities are properly controlled, and the financial situation is good: as of the third quarter of 2024, the total assets of the company were 11.723 billion yuan, an increase of 6.04% over the previous year. Among them, current assets totaled 9.428 billion yuan, up 5.17% year on year, and non-current assets totaled 2.294 billion yuan, up 9.81% year on year. The increase in current assets was mainly due to increases in bills receivable, accounts receivable, inventory, etc., which increased by 13.18% and 14.95%, respectively. In terms of debt, as of the third quarter of 2024, total debt was 3.336 billion yuan, up 0.35% year on year, of which current debt was 2.949 billion yuan, up 5.93% year on year, and non-current debt was 0.387 billion yuan, down 28.35% year on year. The balance ratio remains low, indicating that the company's financial structure is sound and its ability to pay debts is strong. Overall, the company's balance sheet shows a steady increase in the size of the company's assets, proper debt control, and good financial status, providing a solid financial foundation for its continued development.

Profit forecast and investment rating: The company's performance is in line with expectations. We basically maintain the previous forecast. We expect the company's net profit forecast for 2024-2026 to be 0.32/0.437/0.536 billion yuan, respectively, corresponding to PE 69/51/42 times, respectively, to maintain the “gain” rating.

Risk warning: 1) industry competition risk; 2) production and operation risk; 3) risk of financial cost growth.