Taking advantage of the policy trend, the commercial secret industry has a long slope and heavy snow.
Commercial passwords are the foundation of the digital economy and can solve core issues such as data and device security. In the short term, policies related to commercial secrets will continue to be implemented, driving the rapid expansion of the industry scale. About 30,000 systems such as Guanji Industry+ Insurance will all need to complete national secret substitution and cryptographic evaluation by 2025, bringing about a large number of product procurement requirements. According to our estimates, Secret Review+Confidential Reform Compliance will bring a market size of at least 30 billion dollars, and the industry will grow from the previous few billion dollars of market space to 10 billion. Looking at the short-term marginal level, in the second half of 2022, there will be frequent cryptography-related policies in segmented industries, and industry demand is expected to be released at an accelerated pace. In the long run, new application scenarios continue to emerge. The industry will shift from being driven by compliance to being driven by endogenous demands+technology. Scenarios such as data security, cloud security, and the Internet of Things will continue to free up market space, and the industry will continue to experience heavy snow.
A leading commercial midstream manufacturer with obvious product and channel advantages.
The company started with midstream products, which have relatively high barriers in the confidential industry, and has a leading position in the industry. According to our estimates, the market share of the company's board card sector reached 20.64% in 2021. The company's overall competitiveness is remarkable, mainly reflected in 1) Product advantages: The company has strong technical strength and fast product iteration. Currently, the company has the highest number of certified products in the commercial confidential field, leading launch time, complete products, and strong performance. Overall, the product advantages are obvious. 2) Channel advantage: The company mainly sells products through partnerships to avoid too much investment in a certain segment downstream. The number of the company's cooperative vendors rose rapidly in 2019-2021, from 285 to 443. We believe that the midstream of the industrial chain with highly versatile corporate cards has a stable position in the industry, and is expected to benefit first from the accelerated growth in industry demand.
Continue vertical expansion, form a full-chain layout, and enjoy industry dividends.
The company has now formed a full chain of chip-board/machine-system confidential product layout, and is the only manufacturer in the industry that has achieved vertical integration. The company lays out chips upward, strengthening product advantages mainly through two aspects: 1) Cost reduction: since chips are the main component of the cost (accounting for about 35% of the company's cost), self-developed chips save at least 13.56% of the cost compared to external purchases. Future costs will continue to decline as the number of chip streaming chips rises, and the cost advantage is expected to continue to expand. 2) Optimizing product performance: The company's self-developed chips are highly integrated, integrating the functions of the previous board's 6-chip chips into one to solve performance bottlenecks at the source and improve the performance of the entire chain of products. Furthermore, the company laid out the system downwards, deepening the company's competitiveness while opening up room for growth. The company's cloud system was developed directly for customers, enhanced the company's understanding of user needs and agreements, and accelerated the iteration of midstream products, which is expected to continue to lead the industry in launching products. The company's full-chain layout has obvious competitive advantages in products, costs, channels and technology, and is expected to enjoy the dividends brought by the continuous growth of the industry in the short/medium/long term.
Self-developed chips opened up the IoT market and built a second growth curve.
The company's self-developed chips are entering the power grid field with high performance, and we expect that in the future, the company's self-developed chips will continue to be released as the rate of intelligent IoT IoT devices gradually increases. Furthermore, with the continuous development of new scenarios, the industry's collaborative requirements for cryptographic cloud platforms and terminals are getting higher and higher. The company's self-developed chips are expected to be applied in other IoT scenarios such as the Internet of Vehicles, which require higher algorithms, to form a second growth curve in the future.
Investment advice
The company is the only manufacturer in the confidential industry that has achieved vertical integration, and it is scarce. The company has strong R&D capabilities. Starting in the board/machine field, which has high barriers in the commercial confidential industry, developing its own chips upward brings cost and performance advantages, and expands the system downward to open up growth space. We believe that the company is expected to enjoy the dividends brought about by the accelerated development of the industry in the short, medium, and long term. Furthermore, the company's high-performance self-developed chips opened up the IoT market and built a second growth curve, and performance is expected to grow rapidly. We expect the company's revenue from 2023 to 2025 to 482/676/874 million yuan respectively, and the net profit of the parent company is 167/222/276 million yuan respectively. First coverage, the purchase was given an investment rating of -A. The target price for 6 months was 144.50 yuan, which is equivalent to a dynamic price-earnings ratio of 50 times 2024.
Risk warning: The implementation of the policy fell short of expectations, industry competition intensified, and the implementation of cryptographic chips fell short of expectations.