The overall performance of the transition period was under pressure. In 2021, the company achieved revenue of 10.886 billion yuan (-6.28%), net profit of 902 million yuan (-69.02%), and net profit of the non-return mother of 608 million yuan (-76.11%). In the first quarter of 2022, the company achieved revenue of 2,526 million yuan (-1.03%), net profit of 222 million yuan (-17.98%), and net profit of 190 million yuan (-17.16%) after deducting non-return mother's net profit. The decline in the company's overall revenue and profit level is mainly due to the fact that the company is currently undergoing a strategic transformation period and continues to increase investment in government and enterprise security services; at the same time, the Internet business, which is the main source of profit, has declined, and asset impairment losses.
Government and enterprise security business has grown rapidly, and investment in various expenses has increased dramatically. In 2021, the company's traditional business all declined. Internet advertising and service revenue was 6.306 billion yuan (-16.06%), smart hardware revenue was 2,063 billion yuan (-3.68%), and Internet value-added service revenue was 1,104 billion yuan (-2.67%). The company's safety and other business revenue reached 1,381 million yuan (+70.91%), and gross margin was 67.26%, a year-on-year decrease of 8.45 pct. In the first quarter of 2022, the company completed the processing of 547 million yuan of urban safety orders and maintained high growth. The government and enterprise security business is the direction the company is making every effort to transform. While maintaining rapid growth, corresponding investment is also increasing. The sales, management, and R&D expenses rates reached 20.52%, 7.08%, and 28.74% respectively, with increases of 6.23 pct, 1.42 pct, and 4.02 pct respectively.
Security brain continues to make breakthroughs, and the Internet business is expected to pick up steadily. Through the combination of “cloud” and “local”, the customer coverage rate of the company's security brain products has been greatly increased. In 2021, the company completed new contracts with nearly 2,000 customers. The cumulative number of customers covered more than 90% of central ministries, 80% of central enterprises, 95% of large financial institutions, and carried out cybersecurity cooperation with millions of small and medium-sized enterprises. The company's PC security products still maintain an absolute leading market share. 17 years of accumulation have enabled the company to develop rich security big data and threat intelligence. While strongly supporting the development of the security brain, the Internet business has also become the company's stable cash flow support. After experiencing a decline in previous years, the PC advertising business is now in a stable state; the game version was also recently reopened, and the company's Internet business is expected to pick up steadily.
Risk warning: The epidemic has repeatedly affected the company's normal operating pace, increased industry competition, etc.
Investment advice: Maintain an “increase in holdings” rating. The estimated revenue for 2022-2024 is 122,38/136.58/14.946 billion yuan, with a growth rate of 12%/12%/9% respectively, and the net profit of the mother is 10.68/1321/1,590 million yuan, corresponding to the current PE of 58/47/39, maintaining the “increase in holdings” rating.