Summary of the Conference Call for Zongheng Co., Ltd. Company Overview - **Company**: Zongheng Co., Ltd. - **Industry**: Low-altitude digital economy and drone technology Key Financial Highlights - **Revenue Growth**: - Revenue for the first three quarters increased significantly, reaching approximately 320 million yuan, a year-on-year growth of 57% [2][3] - Third-quarter revenue was about 190 million yuan, up 54% year-on-year [2][3] - **Profitability**: - Achieved a net profit of 16 million yuan in the third quarter, marking a turnaround from losses [2][3] - Gross margin for the first three quarters was 48.9%, an increase of 2.2 percentage points year-on-year [2][4] - Operating expenses decreased by 13.4% to 51.7% [2][5] Strategic Focus Areas - **Low-altitude Digital Economy**: - Targeting a market potential of 300 billion yuan in equipment space across national cities and 150 billion yuan in service market at the municipal level [2][8] - Plans to establish platform companies in collaboration with local governments to promote drone operation models [2][7] - **International Market Expansion**: - Engaging with the "Belt and Road" initiative to facilitate exports of small aircraft CW40 and CW100 [2][6] - Anticipated overseas market size of at least 3 billion yuan, with ongoing efforts to secure necessary certifications [2][14] Market Development and Opportunities - **Domestic Projects**: - Secured nearly 200 million yuan in local digital economy demonstration projects [2][6] - Focus on vertical applications in various sectors such as forestry, transportation, and emergency services [2][12] - **Challenges and Solutions**: - Addressing external expansion challenges through successful case demonstrations and partnerships with local governments [2][9] Future Growth Projections - **Market Potential**: - The low-altitude economy is expected to grow significantly, with estimates suggesting a market size exceeding 300 billion yuan [2][13] - Continuous investment in R&D is crucial for maintaining competitive advantages [2][17] - **Talent and Resource Integration**: - Emphasis on attracting talent and leveraging partnerships with state-owned enterprises to enhance operational capabilities [2][18][19] Upcoming Initiatives - **Investor Engagement**: - Plans to hold an investor communication event in November to discuss future strategies and developments [2][26] Conclusion Zongheng Co., Ltd. is positioned for significant growth in the low-altitude digital economy and drone technology sectors, with strong financial performance and strategic initiatives aimed at expanding both domestic and international markets. The company is focused on leveraging partnerships and innovative solutions to capture market opportunities while maintaining a commitment to cost management and profitability.

Core Viewpoint - The aviation equipment sector experienced a rise of 1.11% on October 28, with Tongyi Aerospace leading the gains, while the overall market indices showed a decline [1]. Group 1: Market Performance - The Shanghai Composite Index closed at 3988.22, down 0.22%, and the Shenzhen Component Index closed at 13430.1, down 0.44% [1]. - Key stocks in the aviation equipment sector showed significant gains, with Tongyi Aerospace rising by 6.00% to a closing price of 17.15 [1]. Group 2: Stock Performance - Notable performers included: - Filihua, which increased by 5.47% to 88.00, with a trading volume of 444,000 shares and a transaction value of 3.838 billion [1]. - Maixinlin, up 5.02% to 65.69, with a trading volume of 81,700 shares and a transaction value of 536 million [1]. - Chengxi Aviation, which rose by 4.91% to 17.31, with a trading volume of 430,300 shares and a transaction value of 739 million [1]. Group 3: Capital Flow - The aviation equipment sector saw a net inflow of 308 million from institutional investors, while retail investors experienced a net outflow of 360 million [2][3]. - Key stocks with significant capital inflows included: - Filihua with a net inflow of 318 million, accounting for 8.30% of its trading volume [3]. - Zhonghang Shenfei with a net inflow of 284 million, representing 11.17% of its trading volume [3].

Core Viewpoint - Zongheng Co., Ltd. (688070.SH) reported its Q3 2025 results, indicating a slight decline in institutional investor holdings compared to the previous quarter [1] Institutional Holdings - As of October 27, 2025, three institutional investors disclosed holdings in Zongheng Co., Ltd., totaling 14.73 million shares, which represents 16.82% of the company's total share capital [1] - The institutional holding percentage decreased by 0.32 percentage points compared to the previous quarter [1] Public Fund Holdings - One public fund, Yongying Low Carbon Environmental Smart Selection Mixed Fund A, increased its holdings during this period, with an increase rate of 2.40% [1] - A total of 68 public funds did not disclose their holdings in this quarter, including notable funds such as Changxin National Defense Military Industry Quantitative Mixed A and Huashang Advantage Industry Mixed A [1]

Core Viewpoint - The company has shown significant improvement in its financial performance for the first three quarters of 2025, driven by low-altitude economy policies and increasing domestic and international market demand [6][7]. Financial Performance - For the first three quarters of 2025, the company's operating revenue reached 322.36 million yuan, representing a year-on-year increase of 57.01% [6]. - In the third quarter alone, the revenue was 187.71 million yuan, up 53.79% year-on-year [6]. - The net profit attributable to shareholders for the first three quarters was -19.81 million yuan, showing a significant reduction in losses, while the third quarter net profit turned positive at 16.52 million yuan [6]. Cost Management - The company has effectively enhanced management efficiency, achieving a sales expense ratio of 23.60%, down 6.27 percentage points year-on-year, and a management expense ratio of 15.58%, down 2.78 percentage points year-on-year [6]. Future Outlook - The company plans to capitalize on growth opportunities in the low-altitude economy sector, focusing on the development of drone systems and expanding both domestic and international markets [7]. - There will be a continued emphasis on cost control and management efficiency to support steady growth and achieve annual business objectives [7]. Investor Communication - An investor briefing is scheduled for November 7, 2025, to discuss the third-quarter results and address investor inquiries [11][12].

Investment Rating - The report maintains a "Buy" rating for the company [1] Core Views - The company has turned profitable in Q3 2025, indicating a significant inflection point in its performance [2] - The company is transitioning from an industrial drone manufacturer to a provider of low-altitude digital economy solutions, poised to benefit from the rapid growth of the low-altitude economy [3] Summary by Sections Performance Overview - For the first three quarters of 2025, the company reported revenue of 322 million RMB, a year-on-year increase of 57%. In Q3 alone, revenue reached 188 million RMB, up 53.8% year-on-year and 95.8% quarter-on-quarter [1][2] - The net profit attributable to the parent company for Q3 2025 was 16.52 million RMB, marking a return to profitability [1] Operational Analysis - The company has seen a stable gross margin, with a comprehensive gross margin of 48.9% for the first three quarters of 2025, slightly down by 0.7 percentage points [2] - The company has successfully reduced its expense ratio, achieving a period expense ratio of 51.7%, down 16.3 percentage points [2] - The company is actively building low-altitude economic platforms across various provinces, with project bids totaling nearly 200 million RMB [2] Future Outlook - Revenue projections for 2025-2027 are estimated at 596 million RMB, 727 million RMB, and 859 million RMB, reflecting year-on-year growth rates of 25.6%, 22.1%, and 18.2% respectively [3] - The net profit attributable to the parent company is expected to be 11.37 million RMB in 2025, with significant growth anticipated in subsequent years [3]

Investment Rating - The report maintains a "Positive" outlook for the defense and military industry [6] Core Insights - The 20th Central Committee's Fourth Plenary Session emphasizes the importance of military equipment construction, indicating that the military equipment development is expected to accelerate with the implementation of the 14th Five-Year Plan [9][12] - The successful testing of the Zhuque-3 rocket marks a significant advancement in reusable rocket technology, which is anticipated to lower launch costs and accelerate satellite networking [14][17] - The military sector's stock prices have stabilized recently, with a focus on both domestic and international demand, highlighting the investment value in the military industry [18] Summary by Sections Investment Suggestions and Targets - The report suggests focusing on military electronics, new domains, and the aerospace propulsion chain, with specific stock recommendations including: - Military Electronics: Aerospace Electric (002025, Buy), Zhonghang Optical (002179, Buy), and others [18] - New Domains: Haige Communication (002465, Buy) and others [18] - Aerospace Propulsion Chain: Xibei Superconductor (688122, Buy) and others [18] - Military Trade/Main Equipment: Zhonghang Shenfei (600760, Unrated) and others [18] Industry Performance - The defense and military industry index increased by 2.81%, underperforming compared to the Shanghai Composite Index [21][22] - The report notes that the military industry has shown resilience, with a focus on key components and materials as demand rises [18][21] Recent Developments - The report highlights significant recent events in the military sector, including successful military exercises and advancements in military technology [30][31]

Investment Rating - The report maintains a "Recommended" rating for the company, indicating a potential upside of over 15% relative to the benchmark index [6]. Core Insights - The company reported a revenue of 322 million yuan for the first three quarters of 2025, representing a year-over-year increase of 57.01%. The net profit attributable to shareholders was -20 million yuan, an improvement from -53 million yuan in the same period last year [1]. - In Q3 2025, the company achieved a revenue of 188 million yuan, a year-over-year growth of 53.79% and a quarter-over-quarter increase of 95.77%. The net profit for the quarter was 17 million yuan, marking a turnaround from losses in both the previous year and the previous quarter [1][2]. - The gross margin for the first three quarters of 2025 improved by 2.20 percentage points to 48.86%, while the net margin increased by 10.30 percentage points to 9.68% [1]. Financial Performance - The company effectively controlled expenses, with the expense ratio decreasing by 13.41 percentage points to 51.70%. The sales expense ratio decreased by 6.27 percentage points to 23.60%, and the management expense ratio decreased by 2.78 percentage points to 15.58% [2]. - Research and development expenses amounted to 36 million yuan, reflecting a year-over-year increase of 20.40% [2]. - As of the end of Q3 2025, accounts receivable and notes totaled 156 million yuan, a decrease of 5.21% from the beginning of the year, while inventory increased by 13.50% to 230 million yuan [2]. Market Strategy - The company is actively expanding both domestic and international markets, focusing on the low-altitude economy. It aims to enhance its drone system applications and develop a low-altitude digital economy market [3]. - The company has initiated projects in various cities, including a 106 million yuan contract for a "Smart Bazhong" low-altitude digital economy unmanned system [3]. Earnings Forecast - The company is projected to achieve net profits of 7 million yuan, 60 million yuan, and 125 million yuan for the years 2025, 2026, and 2027, respectively. The current stock price corresponds to a PE ratio of 659x for 2025, 78x for 2026, and 37x for 2027 [4][5].

Core Insights - The company reported a significant increase in revenue and net profit for the third quarter of 2025, indicating strong financial performance [2] Financial Performance - The company achieved a revenue of 187,705,859.22 yuan in the third quarter of 2025, representing a year-on-year growth of 53.79% [2] - The net profit attributable to shareholders of the listed company was 16,523,660.18 yuan for the same period [2]

Core Insights - The aviation equipment sector experienced a rise of 0.68% on October 27, with Hangxin Technology leading the gains [1] - The Shanghai Composite Index closed at 3996.94, up 1.18%, while the Shenzhen Component Index closed at 13489.4, up 1.51% [1] Stock Performance - Hangxin Technology (300424) closed at 20.17, with a significant increase of 10.76% and a trading volume of 430,600 shares, amounting to 827 million yuan [1] - Zongheng Co., Ltd. (688070) saw a rise of 7.49%, closing at 53.10, with a trading volume of 27,200 shares and a turnover of 142 million yuan [1] - Western Superconductor (688122) increased by 5.89%, closing at 76.80, with a trading volume of 363,200 shares and a turnover of 2.767 billion yuan [1] - Other notable performers include Yuelida (300696) up 4.34%, Hitec High-tech (002023) up 3.43%, and Parker New Materials (605123) up 3.19% [1] Fund Flow Analysis - The aviation equipment sector saw a net outflow of 90.2583 million yuan from institutional investors, while retail investors contributed a net inflow of 34.4578 million yuan [2] - The overall net inflow from speculative funds was 55.8005 million yuan [2] Individual Stock Fund Flow - Filihua (300395) had a net inflow of 454 million yuan from institutional investors, but a net outflow of 12.8976 million yuan from speculative funds [3] - Western Superconductor (688122) experienced a net inflow of 201 million yuan from institutional investors, with a net outflow of 83.8497 million yuan from speculative funds [3] - Hangxin Technology (300424) had a net inflow of 70.1027 million yuan from institutional investors, but faced a net outflow from both speculative and retail investors [3]

Group 1 - The core viewpoint of the news is that Zongheng Co., Ltd. reported a significant increase in revenue for the first three quarters of 2025, but also faced a net loss attributed to shareholders [1] - For the first three quarters of 2025, Zongheng Co., Ltd. achieved revenue of approximately 322 million yuan, representing a year-on-year increase of 57.01% [1] - The net profit attributable to shareholders was a loss of approximately 19.81 million yuan, with basic earnings per share reflecting a loss of 0.23 yuan [1] Group 2 - As of the report, Zongheng Co., Ltd. has a market capitalization of 4.7 billion yuan [2]