Event: on August 25, the company released its 2021 semi-annual performance report. Benefiting from the extensive layout of security SE, e-government, new infrastructure and other directions, the company maintained steady growth in security chips, commercial passwords, security services and other products. The revenue of 2021H1 was 844 million yuan, an increase of 94.75% and 37.91% respectively over 20H1 and 19H1, and the net profit decreased by 67.13% compared with 2020H1. Stand-alone and system products with high gross margin and network security products continue to grow faster, with gross profit margin up 4.68% year-on-year and operating net cash flow-131.78% year-on-year, mainly due to purchasing and preparing goods for later business and paying a large amount of purchase money.

With tighter Internet and corporate data security regulation and increased certainty of related orders, Visteon, as the only listed company under China's Internet Security, is expected to be the most beneficial target for data security and privacy computing. 1) data security has become the core of Internet regulation, and data security and privacy computing are expected to benefit significantly. Privacy computing is driven by the dual needs of big data's converged applications and privacy protection. KPMG expects its technical services revenue to reach 10-20 billion RMB in 2023, which will pry into the 100 billion-level data platform operating income space for a long time. 2) in addition to Internet manufacturers, there is a huge potential for data security in financial, energy, medical and other security industries. Data in financial, medical and energy industries naturally have commercial value, user privacy, and there is an urgent need for data security compliance. 3) some data will still be strongly regulated as strategic resources. China Netcom, the controlling shareholder of Weststone, is a network security sub-group built by the company's actual controller, China Electric Power Group, according to the needs of the development of national security strategy. Weststone focuses on the important direction of data security, such as important data and personal information protection, data security circulation and so on. Focus on the layout of private computing From secret sharing, homomorphic encryption and other underlying cryptographic technology, private computing security products, data sharing business model and other aspects of simultaneous promotion, to create a data security compliance sharing ecology.

With the continued high prosperity of passwords, the implementation of laws and regulations, the high growth of new application scenarios and network security events, the market demand for commercial passwords has been promoted, and the widespread application of passwords has become a trend, and the company has actively launched a new field of layout of "password service cloud platform". 1) on the policy side, in 2019, China successively promulgated laws and regulations in the network security industry, such as Equal Insurance 2.0 and the password Law, and the demand for encryption security is expected to continue to be released. Among them, the new standard of "Isobao 2.0" password is more detailed and specific than "Isobao 1.0". It defines strict evaluation standards in terms of password authentication, password technology, password country and industry standards; 2) the ubiquitous application of passwords in new scenarios such as cloud computing and the Internet of things has become a trend. Password technology services cloud computing, big data, AI Internet of things and other applications, password services widely cover the government, enterprises, organizations and the public, widespread application has become a trend. Leading password manufacturers are expected to stand out in the ubiquitous trend. China's NetAn Visteon has launched a new digital economic security solution-"password service cloud" layout in a new field.

Long-term equity incentive plan superimposed management change is expected to improve operational efficiency. The new management of the company has a professional and technical background, the equity incentive plan is valid for ten years, and the total amount of the underlying shares involved in the restricted shares granted does not exceed 10% of the total share capital of the company. The initial incentive targets are about 335 managers, core technical personnel and backbone employees who have a direct impact on the overall performance and sustainable development of the company, the company and the holding subsidiary, accounting for about 15% of the employees. Long-term equity incentive plan superimposed management changes may improve operational efficiency.

With the continuous improvement of channel construction, Xinchuang has abundant orders and high certainty of performance support. Weststone is the core beneficiary of Xinchuang. According to the annual report, it won the bid of more than 2 billion in 2020, ranking in the forefront of the market. The net cash flow of operating activities reached 620 million yuan, an increase of 736.15% over the same period last year. Centering on the requirements of Xinchuang, the company has built a full product system covering chips, modules, platforms, machines and systems, such as Godson Security Module and SDK issued by Godson and Weststone, as well as Xinchuang security solutions.

Maintain a "buy" rating. In 2023, we expect the company to have an operating income of $2.982 million and a net profit of $2.33 billion, $2.88 billion, maintaining a "buy" rating of $4.392 billion and a net profit of $2.33 billion, or $288 million, in 2023.

Risk hint: competition aggravates risk; policy strength is not as strong as expected risk; risk of slow layout of new areas.