Sino-Singapore Syke's 2022 revenue fell 37.2%, in line with market expectations: revenue of 440 million yuan, down 37.2% year on year; net loss to mother of 120 million yuan, from profit to loss; revenue for the fourth quarter was 170 million yuan, which was basically the same as the previous year. Net loss to mother was 21.21 million yuan, which changed from profit to loss year on year, in line with market expectations.

Development trends

Revenue declined in the short term due to changes in the industry cycle. 1) In terms of product, broadband network/mobile network revenue for front-end products decreased by 35.0%/49.9% year-on-year to 170 million yuan/92.56 million yuan, respectively; back-end products, network content security/big data operation products, decreased 10.9%/79.6% year-on-year to 4925/8.26 million yuan, respectively, and network and data security products +159.7% year-on-year to 9.59 million yuan. 2) In terms of downstream customers, the government/operator industry declined by 44.7%/30.1% year-on-year to 2.5/140 million yuan respectively in '22. 3) Revenue from overseas regions fell 42.6% year on year to 62.79 million yuan. According to the company's disclosure, the decline in revenue in '22 was mainly due to the company's domestic and foreign business development being continuously affected by industry changes. The signing and execution progress of major industry customers and some overseas business orders was delayed. Although some projects were signed, they were unable to implement and confirm revenue during the reporting period. We believe that as the boom in the network visualization industry picks up, the government and operator industry invest more in post-5G construction, and the fulfillment of orders that have been delayed, the company's performance is expected to reverse at the bottom.

Gross margin fluctuated, and R&D investment increased. The company's gross margin fell 2.8ppt to 66.1% year on year. Among them, the gross margin of broadband network products increased by 0.8 ppt to 85.5% year on year, the gross margin of mobile network/network content security products decreased by 7.4/6.8ppt to 61.9%/73.1% year on year; the gross margin of the government industry fell 6.0 ppt to 53.2% year on year, and the gross profit margin of the operator industry was 90.6% year on year, basically the same as last year.

At the cost level, the total three fees (sales, management and R&D) in '22 were +8.9% year-on-year. Among them, sales expenses decreased 5.0% year over year, and R&D/management expenses increased 18.8%/18.7% year over year.

Lay out data security and expand business boundaries. During the reporting period, the company released a data security management platform and established a data security product and service system. Accurate analysis and protection of industry customer data is achieved based on data asset sorting and classification. In addition, the company launched a data security public service platform, database firewall, database audit, etc. to reinforce the data security product base. Currently, the company's data security products have been promoted in various industries such as finance, operators, and government affairs.

Profit forecasting and valuation

Due to the growing boom in the network visualization industry, customer demand is clearly picking up, and the company's focus on improving quality and efficiency, we kept our revenue forecast unchanged, increasing net profit of 30.4% to mother in '23 to 150 million yuan, while introducing 24-year revenue of 1.03 billion yuan and profit of 230 million yuan. The current stock price corresponds to 51.0 times the 23-year price-earnings ratio and 33.9 times the 24-year price-earnings ratio. Maintaining an outperforming industry rating, as the online visualization industry chain ushered in an inflection point, performance is expected to be released, and market sentiment picked up. We raised our target price by 48% to 49 yuan, corresponding 55.6 times the 23-year price-earnings ratio and 37.0 times the 24-year price-earnings ratio. There is a 9% upside compared to the current stock price.

risks

Downstream customer demand recovery fell short of expectations, and overseas business expansion fell short of expectations.