The company released a three-quarter report: 9M24 achieved revenue of 2.914 billion yuan, -6.49% YoY, and net profit to mother 0.153 billion yuan, or -32.98% YoY. 24Q3 achieved revenue of 0.856 billion yuan in a single quarter, with a net profit loss of 4.64 million yuan compared to the same period last year. The profit for the same period last year was 57.49 million yuan, lower than our expectations (0.057 billion yuan). This is mainly due to the fact that the final investment at the end of the “14th Five-Year Plan” was mainly based on stock promotion, and demand for new construction projects declined, leading to a decline in the company's revenue, and short-term cost rigidity caused profit margins to fall beyond expectations. We believe that the company has been affected by PPP and is expected to benefit from increased debt in the future, and that the company will take the lead in developing in the low-altitude economy, actively create emerging growth points, and maintain an “gain” rating.

The overall gross margin improved, the expense ratio eroded profits, and the increase in the pay-to-cash ratio greatly affected cash flow

9M24's comprehensive gross profit margin was 31.64%, +0.81 pct year on year, of which 24Q3 gross profit margin was 35.75%, +3.66 pct year on year, and +2.23 pct month on month. The cost rate for the 9M24 period was +20.37%, +1.33pct year on year, 26.70% year on year 24Q3, +7.67pct year on year, of which the sales/management/R&D/finance ratio was +0.37/+2.73/+1.74/+2.83 pct year over year. 9M24's net profit margin was 5.26%, -2.08pct year-on-year, with 24Q3 losses. 9M24's net operating cash flow was -0.747 billion yuan, -0.056 billion yuan year on year, and the receipt and cash ratio was 89.7%/51.4%, respectively, +3.67/+6.37 pct. By the end of 24Q3, the company (notes receivable and accounts+contract assets) totaled $8.844 billion, which is about 1.68 times its revenue for 23 years. By the end of 24H1, the total amount of bad debt provisions was 3.381 billion yuan, which is about 10 times the net profit returned to mother in '23.

The low-altitude economic layout is being accelerated, and application scenarios are being implemented first

Actively participate in the low-altitude economy and build a new curve. In recent years, the company undertook more than 60 major aviation consulting projects at the national, provincial and municipal levels, and participated in the establishment of the first domestic low-altitude economic innovation and development alliance in January 24; established a new low-altitude economic joint venture with Shenzhen United Aircraft Group in April to become a high-end low-altitude think tank technology enterprise with the Jianye District Government; in May, it signed a contract with the Jianye District Government for the city's key low-altitude economy project “Sujiao Ke Tengyun Low Altitude Intelligent Connection Project”; in September, it landed on low-altitude flight applications and completed the Nanjing Jiaotong Ximen Design Center Three locations: Venture Center and Fangshan R&D Base Approval of low-altitude navigable flight airspace and obtaining an operating license. Transport drones are controlled through the self-developed Tengyun low-altitude flight supervision service platform to achieve regular document transportation and other distribution tasks on fixed routes, and take the lead in accumulating low-altitude flight and service experience.

Profit forecasting and valuation

Considering the slowdown in the growth rate of traditional infrastructure investment and the decline in new construction projects, the demand of infrastructure design companies is expected to slow down. We adjusted the company's net profit forecast for 2024-2026 to 0.29/0.3/0.31 billion yuan (previous value 0.37/0.41/0.46 billion yuan). Comparable to the company's 25-year Wind, the average expected value was 70xPE, approved the 25-year 70xPE, adjusted the target price to 16.45 yuan (previous value 9.38 yuan), and maintained the “gain” rating.

Risk warning: The growth of new orders fell short of expectations, debt conversion fell short of expectations, and the development of low-altitude economy businesses fell short of expectations.