Incidents:

On October 29, 2024, the company announced the 2024 three-quarter report;

In the first three quarters of 2024, the company's revenue was 0.918 billion yuan, -5.07%; net profit to mother was 0.016 billion yuan, +29.09%; net profit not after deducting back to mother -0.004 billion yuan, -141.28%; in the third quarter of 2024, the company's revenue was 0.28 billion yuan, -36.31% year on year; net profit to mother 0.021 billion yuan, -14.56% year on year; net profit not after deducting 0.008 billion yuan, -64.66% YoY.

Investment highlights:

The urban governance business affected Q3 performance, and the civil aviation transport+road traffic management business progressed steadily　　

The company's Q3 revenue was under pressure, mainly due to a decrease in sales revenue in the field of urban governance. On October 12, the Ministry of Finance emphasized increasing countercyclical fiscal adjustment, and the urban governance business is expected to stabilize.

The civil aviation transport+road traffic management business is progressing steadily. 1) Civil aviation traffic: won the bid for the Xi'an Xianyang International Airport Phase III expansion project integrated tower system project and the air traffic control automation system equipment procurement project in August 2024, with a bid amount of nearly 100 million yuan, achieving full market coverage of China's seven major regional bureaus in the field of automation; 2) Road traffic management: winning the bid for the Chongqing East Railway Station smart transportation project in August 2024. It is another major project after the smart transportation project in the main city of Chongqing.

Q3 Gross margin increased significantly year-on-year, and the company continued to increase investment in R&D

In the first three quarters of 2024, the company's gross sales margin was 26.97%, -0.53 pct; of these, the gross margin of 2024Q3 was 38.53%, +14.24pct year on year. The increase in gross margin in the third quarter was mainly due to the company speeding up the pace of acceptance of high-margin businesses in the second half of the year.

In the first three quarters of 2024, the company's sales/management/ R&D expense rates were 7.55%/8.70%/11.40%, respectively, -0.34pct/-0.34pct/+1.99pct. The company's main business area is highly independent research and development of product technology. The company has formed technical barriers through continuous R&D investment and long-term technology accumulation, and R&D expenses have increased significantly over the same period last year.

The low-altitude benchmark project is being implemented at an accelerated pace, and the air traffic control leader is about to take off

In low-altitude airspace, the company accelerated the implementation of benchmark projects, focusing on the flight management platform to accelerate the development of low-altitude “Tianmu” series products, carry out exchanges and form strategic cooperation with more than 20 provinces and cities, including Beijing, Shanghai, Chongqing, Jiangsu, Anhui, Guangzhou, Nanjing, Suzhou, and Zhuhai, and achieved phased results in some regions.

Specifically, on October 26, 2024, shareholder Denklais and the Wuxi Transportation Bureau signed a strategic cooperation agreement based on the Wuxi Low-Altitude Flight Service Platform; in July of the same year, they signed a low-altitude economic strategic cooperation framework agreement with Shanghai's Baoshan District to jointly build a low-altitude joint innovation center; in July of the same year, CLP and Nanjing signed a strategic cooperation to jointly build strategic emerging industry clusters such as the low-altitude economy.

Profit forecast and investment rating: The company's three major businesses are growing steadily, and the low-altitude economy is expected to create a new growth curve. The company is expected to generate revenue of 1.76/2.193/2.84 billion yuan in 2024-2026, net profit to mother of 0.157/0.231/0.304 billion yuan, EPS of 0.96/1.41/1.86 yuan respectively, and the current stock price corresponding to 2025-2026 PE is 84/64X, respectively, maintaining an “gain” rating.

Risk warning: Technology research and development risks, loss of technical personnel, risk of macroeconomic fluctuations, risk of increased industry competition, low altitude economy industry development falling short of expectations.