Incident: The company announced 2024Q1-3 that revenue of 0.812 billion yuan decreased by 22.90%; net profit of 0.112 billion yuan to mother decreased by 19.46%; after deducting 0.102 billion yuan, the same decrease of 2.10%. Among them, 2024Q3's revenue for a single quarter was 0.293 billion yuan, down 16.03%; attributable net profit of 0.053 billion yuan decreased by 23.50%; and net profit attributable after deduction of 0.047 billion yuan decreased by 23.92%.

Impairment recovery helped repair profit margins, and operating cash flow improved slightly. The company's 2024Q1-3 gross sales margin was 34.03% with an increase of 2.09pct, mainly due to the optimization of the company's revenue structure; the cost ratio for the period was 17.27% and 0.44pct, of which the company's sales/management and R&D/ financial expense ratios were 2.29%/14.79%/0.19%, and the year-on-year change was -0.24pct/0.13pct. The reduction in sales expenses was mainly due to the company's control of the scale of marketing. The reduction in financial expenses was mainly due to increased interest income and reduced rental interest expenses; assets The credit impairment loss rate of 0.01% decreased by 0.87 pct, mainly due to the disposal of more fixed assets in the same period last year and the recovery of EPC project guarantees in the current period; the net interest rate due to the 13.78% increase of 0.59 pcts. The company's 2024Q1-3 net cash flow from operating activities was 0.027 billion yuan, less than the same period of the previous year by 0.003 billion yuan; the revenue ratio decreased by 1.18 pcts from 94.36%; and the cash on payment ratio decreased by 9.33 pcts from 28.04%. As of 2024Q1-3, the size of the company's accounts receivable and notes, inventory+contract assets, accounts payable and notes, accounts receivable plus contract liabilities was $4.8/0.38/0.23/0.57 billion, respectively, with a year-on-year change of 5.83%/15.82%/-10.14%/8.17% from the beginning of the year.

The plan is to expand the digital culture industry and improve the business layout. On September 23, 2024, the company invested 10 million yuan of its own capital to establish Huayang Digital Culture (Jiangxi) Co., Ltd.; on the same day, the company and partners such as Shanghai Guoke Longhui Private Equity Fund Management Co., Ltd. jointly invested to establish a digital culture industry development investment fund. The fund size was 0.2 billion yuan, and the initial investment amount was 30 million yuan. The company accounted for 50% of the partnership's investment. The company has set up wholly-owned subsidiaries and industrial funds to give full play to the resource advantages of all parties, invest directly or indirectly in the field of digital culture, deepen the company's research and practice in content creation, product innovation, market expansion, etc., and enhance its core competitiveness and sustainable management capabilities.

Investment advice: We expect the company's net profit to be 0.145/0.175/0.201 billion yuan in 2024-2026, or -10.2%/20.9%/14.8% YoY. The corresponding PE was 21.5/17.8/15.5 times, respectively, maintaining the “gain” rating.

Risk warning: The risk of macroeconomic fluctuations, technological advancement falls short of expectations, and the market competition pattern deteriorates.