Event: On October 29, 2024, the company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 0.918 billion yuan, -5.07% year-on-year; net profit to mother of 0.016 billion yuan, or 29.09% year-on-year; net profit after deducting non-attributable net profit of -0.004 billion yuan, which changed from profit to loss year-on-year. The results were slightly lower than market expectations.

Key points of investment

Revenue was dragged down by the urban governance business. Short-term profit was affected by depreciation calculation: The decline in the company's revenue in the first three quarters was mainly due to a decrease in sales revenue in the urban governance sector during the reporting period. The decline in the company's non-net profit was mainly due to a decrease in sales revenue in the urban governance sector during the reporting period and more preparation for asset impairment in the current period. The company and its subsidiaries conducted impairment tests on the company's assets as of September 30, 2024. Based on the principle of prudence, the company confirmed a total of 37.5526 credit impairment losses and asset impairment losses in the first three quarters of 2024 million yuan. We expect that with the deepening of debt, the company's related business growth is expected to resume.

Low-altitude infrastructure construction is progressing rapidly, and various regions are speeding up layout. Take Suzhou as an example. On October 19, the opening ceremony of the 2nd National Low Altitude Economy (Suzhou) Industrial Innovation Expo was held. At the conference, it was revealed that currently 102 low-altitude take-off and landing facilities in Suzhou have been built and put into use, and 23 are under construction. It is expected that more than 500 take-off and landing points will be built by the end of 2024 to achieve a network layout throughout Suzhou. Low-altitude infrastructure construction is not only representative of new quality productivity, but also a key direction for national investment. The market space is large, and the layout is being accelerated everywhere in the short term.

Build low-altitude core products and actively promote the implementation of benchmark projects: The company released the low-altitude field in June 2024. The company built a core product, and developed a new low-altitude flight service guarantee series - the Rice “Tianmu” series, including the low-altitude flight management service platform - “Tianmu-M”, the drone operation service system - “Tianmu-S”, the airspace route planning simulation system - “Tianmu-P”, and the landing site intelligent management system - “Tianmu-A”. The company is currently promoting the implementation of benchmark projects. Relying on deep technology and business accumulation, the company focuses on accelerating the development of low-altitude “Tianmu” series products around flight management platforms, jointly planning overall low-altitude development plans with local governments, carrying out close exchanges and forming strategic cooperation with more than 20 provinces and cities, including Beijing, Shanghai, Chongqing, Jiangsu, Anhui, Guangzhou, Nanjing, Suzhou, and Zhuhai. It has also achieved phased results in some regions, empowering the low-altitude flight service guarantee system and accelerating the development of the low-altitude economy industry.

Profit forecast and investment rating: Leading air traffic control system companies, considering being dragged down by urban governance projects, we downgraded the company's 2024-2026 EPS to 0.89/1.26/1.62 (original value 1.00/1.28/1.64 yuan). It is expected that as infrastructure construction for the low-altitude economy continues to be implemented, the company is expected to take the lead in benefiting and maintaining a “buy” rating.

Risk warning: Policy progress falls short of expectations; technological progress falls short of expectations; competition intensifies the impact.