Incident: Recently, the company released a report for the third quarter of 2024. In the first three quarters, the company achieved operating income of 0.308 billion yuan, a year-on-year decrease of 21.94%, and realized net profit to mother of -0.343 billion yuan, an increase of 65.67% year-on-year; in the third quarter, revenue of 0.088 billion yuan, an increase of 2.05% year-on-year, and realized net profit to mother -0.105 billion yuan, an increase of 1.47% year-on-year losses.

Overall performance was in line with expectations and gradually picked up steadily. In the first three quarters, the company achieved revenue of 0.308 billion yuan, a year-on-year decrease of 21.94%. However, Q3 performance picked up steadily, revenue achieved positive year-on-year growth, and losses narrowed. Looking at specific breakdowns, in the third quarter of a single quarter, information-technology chip revenue reached 0.033 billion yuan, up 16.70% year on year, gross margin reached 27.85%, up 14.54 pct year on year, and became the main driving force behind the recovery in performance. The company's sales/management/R&D expenses accounted for 22.40%/25.73%/101.04% of revenue in the first three quarters. Sales expenses increased by 19.31%/25.25%/78.44% in the same period last year. The increase in sales expenses was due to downstream recovery, and R&D expenses increased significantly. The main reason was that the company reached a period of R&D transformation. The main products were in the R&D flow stage, so the overall cost level was manageable.

The Xinchuang business is gradually picking up, and the competitiveness of its main products is improving. (1) The company's information chip sales increased. The sales volume of information chips increased by 0.142 billion yuan in the first three quarters, up 114.18% year on year, mainly due to the recovery in downstream demand. At the same time, the company continued to iterate products and continuously improve its product strength. Following the gradual deepening of domestic substitution policies and the recovery of the Xinchuang market, the company's information chip sales are expected to continue to increase; (2) The industrial control sector was affected by the temporary stagnation of procurement by important customers in the field of security applications. Sales of high-reliability chips temporarily declined, but sales of high-reliability chips temporarily declined in new industries (such as 2P0300) The development of 2K0300, etc.) has brought new market opportunities to the company. The company also continues to increase investment in R&D, promote the improvement of the competitiveness of its main products, and seize the development opportunities of Xinchuang.

Company profit forecast and investment rating: The company is committed to building an independent command system and industrial ecosystem. The main products continue to iterate and improve their competitiveness. As the Xinchuang market recovers and gradually deepens, the company's performance is expected to rise steadily. We expect the company's net profit for 2024-2026 to be -1.96, 0.07 and 87 million yuan respectively, corresponding to EPS of -0.49, 0.02 and 0.22 yuan, respectively.

The current stock price corresponding to 2024-2026 PS values is 89.81, 70.47, and 52.47 times, respectively, maintaining the “recommended” rating.

Risk warning: Risk that Xinchuang's deepening falls short of expectations, product development falls short of expectations, and the company's business expansion falls short of expectations.