The company is a leading enterprise in network visualization in China, continuously consolidating its advantages in the traditional 2G market and expanding its business in the 2B market. Short-term performance in 2021 and Q1 2022 was under pressure due to the impact of the pandemic and downstream customer investment demand. As the impact of the pandemic recedes, industry investment progress is expected to gradually recover. The company's net profit forecast for 2022-23 was lowered to 11,136 million yuan (the original forecast was 396/483 million yuan), the 2024 net profit forecast was increased by 176 million yuan, and the company was given a target market value of 4.4 billion yuan in 2022 (corresponding to 40 times PE in 2022), corresponding to the target price of 26 yuan, maintaining the “increase in holdings” rating.

Matters: The company publishes its 2021 annual report and 2022 quarterly report. In 2021, the company achieved revenue of 694 million yuan, a year-on-year decrease of 27.27%; realized net profit of 56.27 million yuan, a year-on-year decrease of 77.29%; and realized deduction of non-net profit of 5.75 million yuan, changing profit to loss. In the first quarter of 2022, the company achieved revenue of 88.54 million yuan, a year-on-year decrease of 52.51%; realized net profit returned to the mother - 55.71 million yuan, deducting non-net profit - 5582 million yuan, switching from profit to loss.

The 2021 performance was under pressure, and the pandemic affected the investment strength and order progress of the industry. The company's 2021 performance came under pressure. On the one hand, the government and operators were affected by the epidemic and other factors, and investment in the field of 5G network information security slowed down. On the other hand, the execution progress of some of the company's orders was delayed and testing work was delayed. By product line, in 2021, broadband networks achieved revenue of 260 million yuan, a year-on-year decrease of 44.69%; mobile networks achieved revenue of 185 million yuan, an increase of 15.86% over the previous year; network content security achieved revenue of 55.3 million yuan, a decrease of 48.97% over the previous year; and big data operations achieved revenue of 40.55 million yuan, a year-on-year decrease of 57.17%. By industry, the government industry brought in revenue of 461 million yuan, a year-on-year decrease of 33.91%; the operator industry brought in revenue of 196 million yuan, down 13.37% from the previous year. The impact of the epidemic was relatively small. The company's gross margin decreased by 7.28 pcts to 68.95% in 2021 due to changes in product structure. In terms of expenses, sales expenses increased 3.60% year on year to 191 million yuan, management expenses decreased 23.63% to 58.54 million yuan, and R&D expenses fell 12.21% to 208 million yuan. Excluding the impact of share payment costs, the total of the three expenses increased 19.81% year on year.

Demand in the network visualization industry is expected to pick up, and investment in network security and digital security has broad room for growth. With the advancement of 5G network construction, the increase in bandwidth and 5G users will drive demand in related industries to rise. In the long run, the scale of network visualization construction is directly correlated with the growth rate of network traffic, and product market opportunities are still broad. In 2021, the number of broadband access ports for fixed networks reached 1,018 million, a net increase of 71.8 million over the end of 2020; total mobile Internet access traffic reached 221.6 billion GB, an increase of 33.9% over the previous year, and the average monthly household traffic reached 13.36 GB/house/month, an increase of 29.2% over the previous year. At the same time, with the seriousness of information security and personal privacy security issues, there is a broader market space for cybersecurity and data security supervision services for various emerging businesses such as IPTV, Internet of Things, Internet data centers, big data, etc., providing opportunities for the company to develop.

Continue to upgrade product development and develop to explore business opportunities in the government-enterprise network market. On the front-end side, the company launched a new generation of autonomous and controllable broadband network products, upgraded and optimized broadband network data forwarding platforms, developed business distribution platform products for enterprises; increased investment in 5G mobile network products and wireless network product platforms; launched 5G mobile and fixed mobile network products to support future 5G scale construction. On the back-end side, in the field of network content security, the company upgraded the network situation analysis system, developed a big data analysis system for the epidemic and a network traffic quality monitoring system for operators, and deployed it on a large scale. In the field of big data operation, the company formed a data-to-service big data closed-loop ecosystem to provide an end-to-end solution for enterprises to “intelligently transform digital transformation”. Excluding the impact of share payment costs, the company's actual R&D investment in 2021 was 244 million yuan, an increase of 21.68% over the previous year. The number of R&D personnel increased to 770, accounting for 58.73% of the company's employees.

Risk factors: The recovery in government and operator market demand fell short of expectations, industry competition intensified, and the company's new product development and implementation progress fell short of expectations.

Investment advice: Combining the 2021 data, the company's net profit forecast for 2022-23 was lowered to 11,136 million yuan (the original forecast was 396/483 million yuan), and the 2024 net profit forecast was increased by 176 million yuan. Referring to the average valuation level of Hengwei Technology, Dipu Technology, Anheng Information, and CICA Security in 2022, the company's target market value of 4.4 billion yuan in 2022 (corresponding to 40 times PE in 2022), the corresponding target price was 26 yuan to maintain the “increase in holdings” rating.