Incident: Dasil Intelligence released its 2024 Q3 report. In the first three quarters of 2024, the company achieved operating income of 2.146 billion yuan, a year-on-year decrease of 21.33%; net profit to mother was 0.048 billion yuan, a year-on-year decrease of 54.83%.

Q3 Increased gross margin. Due to the high impact of the gross margin of projects settled in the third quarter of 2024, the company's overall gross margin reached 27.45% in the first three quarters, an increase of 3.42pct over the previous year. The company's gross margins for the first three quarters were 26%, 27%, and 29%, respectively. Although the company's Q3 revenue continued to decline, the growth rate of net profit to mother changed. In the third quarter, the company achieved operating income of 0.793 billion yuan, a year-on-year decrease of 25.97%; net profit to mother was 0.039 billion yuan, an increase of 31.36% over the previous year.

The amount of contracts signed and bid continued to rise. During the reporting period, the total amount of projects signed and won by the company was 2.32 billion yuan, an increase of 13.13% over the previous year. In October 2024, the company successively announced that it had won bids for projects with contract amounts over 100 million, such as the Xi'an Photovoltaic New Energy Industrial Park, Shenzhen-Hui Qianhai Free Trade Zone comprehensive monitoring and MCC system. We are optimistic about the positive impact of the project on the company's future performance.

Continue to strengthen investment in R&D. In Q3 2024, the company continued to increase investment in R&D. This is due to increased investment in Dash's AIoT intelligent IoT management and control platform. R&D expenses in a single quarter were 0.024 billion yuan, up 23.73% year over year.

Investment advice: The company's previous year's orders fell short of expectations, leading to a decline in performance in the first half of 2024. Entering the third quarter, the amount of contracts signed by the company continued to rise, and the increase in gross margin led to a correction in the growth rate of the company's net profit to mother. Furthermore, the company continues to invest in R&D and iterates on core platforms to strengthen product strength. We predict that in 2024-2026, the company will achieve revenue of 3.201 billion yuan, 3.764 billion yuan, 4.472 billion yuan; net profit to mother 0.056 billion yuan, 0.081 billion yuan, 0.12 billion yuan; EPS 0.03, 0.04, 0.06, PE 126X, 87X, 59X, maintaining a “buy” rating.

Risk warning: industry competition intensifies; technological transformation falls short of expectations; order delivery falls short of expectations; changes in industry policies.