Matters:

The company released its third quarter report. The report shows that in the first nine months, the company achieved revenue of 0.355 billion yuan, a year-on-year increase of 1.50%; realized net profit of 0.092 billion yuan, a year-on-year decrease of 23.00%; realized net profit deducted from non-mother 0.089 billion yuan, a year-on-year decrease of 25.35%.

Ping An's point of view:

Revenue increased slightly year over year, gross margin increased, and losses narrowed. The revenue scales for Q1, Q2, and Q3 were 0.104 billion, 0.12 billion, and 131 million yuan, respectively. Revenue increased quarter-on-quarter, with year-on-year growth rates of +1.62%, -9.64%, and +14.29%, respectively. The revenue for the 3rd quarter showed significant year-on-year improvement. In the first nine months, the company's overall gross margin increased to 62.08%, an increase of 0.46 percentage points over the previous year. In the first three quarters, exchange losses increased, interest income and government subsidies decreased, which affected the company's net profit level. In the first nine months, the company's exchange losses increased by 3.4269 million yuan year on year, interest income decreased by 1.5955 million yuan year on year, and government subsidies decreased by 5.5876 million yuan year on year, totaling 10.61 million yuan. In addition to the increase in R&D expenses and sales expenses, the increase in exchange losses and the reduction in interest income and government subsidies affected the company's net profit to a certain extent.

The high-end product development strategy continues to advance, with remarkable results. From January to September 2024, the company's high-end development strategy achieved remarkable results, and the structure of the four main products (digital oscilloscope, spectrum analyzer, signal generator, vector network analyzer) was continuously optimized. High-end, mid-range, and low-end products accounted for 24.16%, 54.56%, and 21.28% of revenue respectively. High-end products increased 3.18 percentage points year-on-year, driving the average unit price of the four main products to increase 14.67% year over year. Looking at the unit sales price of products, from January to September 2024, sales of products with a unit price of 0.05 million or more increased 38.37% year-on-year, while sales of products with a unit price of 0.03 million or more increased 24.39% year-on-year.

Since 2024, the more expensive products the company sells, the faster it grows, which fully reflects the effectiveness of the company's high-end strategy. Revenue from core products such as high-resolution digital oscilloscopes continues to grow. The company has a complete product line of high-resolution digital oscilloscopes, with obvious competitive advantages and outstanding performance. From January to September 2024, the company's domestic revenue for high-resolution digital oscilloscope products increased by 28.00% year-on-year, which had a positive impact on the increase in revenue.

The results of continuous R&D investment are obvious, and the launch of various products is expected to support subsequent growth. In recent years, the company has maintained a high level of R&D investment, with R&D expenses accounting for 19.66% of revenue in the first three quarters of 2024. In October 2024, the company officially released the 8GHz, 12-bit SDS7000AP high-resolution digital oscilloscope and the SDM4055A five-digit half-speed digital multimeter. Among them, the SDS7000AP has a maximum bandwidth of 8 GHz, a vertical resolution of 12 bits, a maximum sampling rate of 20 GSa/s for all four channels, and a maximum storage depth of 2 GPTS/ch. It supports various conformance tests and eye image jitter tests, and is widely used in various fields such as medical treatment and industrial automation; the SDM4055A has a reading rate of up to 4,800 rdgs/s, covering 11 measurement items, etc., and is suitable for various fields such as communications and new energy. In addition, the company also released new functions such as vector mixing measurement for SNA5000X/A series vector network analyzer products, further enhancing product testing capabilities.

Investment advice: The company is one of the few general electronic test and measurement instrument manufacturers in the market with the ability to develop, produce and sell the four main products of general electronic test and measurement instruments: digital oscilloscopes, signal generators, spectrum analyzers, and vector network analyzers. It is also one of the few domestic enterprises that also have these four main products and all four main products have entered the high-end field. In the short term, there is some pressure on the company's market demand, and the scale of investment in R&D and market development is large, so we lowered the company's profit expectations. EPS is expected to be 0.77 yuan (previous value 1.26 yuan), 0.92 yuan (previous value 1.60 yuan), and 1.14 yuan (previous value 1.98 yuan), respectively, and PE corresponding to the closing price on October 31 is 41.4X, 34.7X, and 27.9X. Although short-term performance is under pressure, the trend of localization and substitution of electronic instruments is accelerating, and some new scenarios have also shown great application potential. The company's market position is relatively solid, and the contribution of continuous R&D investment to the new product market is expected to increase. It is still optimistic about subsequent development and maintains a “recommended” rating.

Risk warning: (1) The risk that regulated raw materials cannot be licensed. If the US commercial department stops issuing export licenses for related chips to the company, the company's self-development or cooperative chip development progress falls short of expectations or fails, and it fails to find suitable suppliers domestically, it may adversely affect the company's business performance. (2) The risk that products are mainly exported and domestic markets are poorly developed. If the company cannot effectively manage overseas business or the overseas market expansion goals are not achieved on schedule, it may affect the company's future domestic business development, which in turn will adversely affect the company's overall business performance. (3) The risk of failure in the development of high-end general electronic test and measurement instrument chips and core algorithm projects. If the high-end chip R&D project fails and cannot support the high-end of the company's products, the company's business performance will face the risk of declining.