Event: on October 27, Hua an Xinchuang released three quarterly reports. Q3 achieved revenue of 279 million yuan (year-on-year + 18.40%, month-on-month + 23.18%), net profit of-9.99 million yuan and non-return net profit of-10.84 million yuan in a single quarter.

Revenue in the third quarter was in line with expectations, and multiple factors led to pressure on profitability. 2023Q3 company gross profit margin 6.69%, year-on-year-4.82pct, month-on-month-0.17pct. 1) the competition among downstream vehicle manufacturers has intensified since 2023, which is transmitted to the industrial chain; 2) the company's software development income with high gross margin is confirmed to be seasonal. Q3 company's parent net interest rate is-3.58%, year-on-year-9.80pct, month-on-month-1.52pct. The company continued to increase R & D investment in the process of transition to Tier 1. Q3 company R & D expenditure was 14.19 million yuan, + 52.68% compared with the same period last year, and the R & D expenditure rate was 5.08%, year-on-year + 1.14pct. 2023Q3 company management expense rate is 4.01%, year-on-year + 1.39pct, mainly because the company's Nantong factory has not been fully put into production, but the corresponding production management team has been in place, the corresponding expenditure has been incurred. On the asset side, as of 2023Q3's fixed assets + projects under construction totaled 202 million yuan, + 467.55% compared with the same period last year, mainly due to the continuous construction of the company's Nantong factory.

Nantong factory has made steady progress to accelerate the transformation to Tier 1 business. The company has successively set up joint ventures with Shenzhen Tianma and Jingdong Jingdian to deeply bind the two major domestic vehicle panel suppliers and continue to develop the vehicle screen display Tier1 business by virtue of its low-cost and strong supply of screen resources. Under the premise of having upstream screen resources, the company has raised funds through IPO to set up a Tier1 factory in Nantong. At present, the company's Nantong factory has successfully obtained ATF16949, ISO9001, ISO45001, ISO14001 and other system certifications. according to the company announcement, the intelligent manufacturing base of Nantong vehicle liquid crystal display module and intelligent cockpit display system has successfully passed the audit of Changan Automobile, and obtained the product development and supply qualification of two models.

Investment advice:

We estimate that the company's homing net profit from 2023 to 2025 will be 40 million, 90 million and 210 million respectively (taking into account the fierce competition among mainframe factories this year and lower-than-expected downstream demand, the profit forecast will be lowered, corresponding to the current market capitalization, PE is 122.2, 52.7and 22.7 times, respectively. Maintain the company's "buy-A" rating, considering that the company is in transition, give it a valuation of 25 times in 2025, with a 12-month target price of 65 yuan.

Risk hint: the competition in the industry intensifies; the progress of capacity delivery is not as expected.