Xinan Century's revenue in 2022 was 660 million yuan, in line with our expectations, Xinan Century announced its 2022 results: revenue of 660 million yuan, an increase of 25.4% over the previous year; Guimu's net profit of 160 million yuan, an increase of 6.4% over the previous year; after deduction, the net profit of Homu was 156 million yuan, up 8.8% year on year; revenue for the fourth quarter alone increased 30.1% year on year to 350 million yuan, Guimu's net profit increased 4.7% to 110 million yuan year on year, and Guimu's net interest rate fell 7.7ppt year on year To 31.6%, in line with our expectations.
Development trends
Financial customers are growing rapidly, stabilizing the basic market and expanding into multiple industries. In terms of products, the company's data security, communication security, and cloud security product revenue increased 28.5%/41.2%/82.6% year-on-year in 2022. Among them, cloud security products maintained a high growth rate with the improvement of cloud computing applications. In terms of customer dimensions, financial and corporate revenue in 2022 was +48.8%/9.7% to 44/ 140 million yuan, respectively; government revenue fell 20.0% year-on-year to 74.22 million yuan; financial customer revenue grew rapidly, higher than the company's overall revenue growth rate. The company mainly provided security products and solutions for pan-financial customers such as banks, securities, funds, etc., and strengthened security protection for interindustry applications to help customers improve national secrets; in addition, the company increased customer coverage and expanded to customers such as human resources, transportation, operators, hospitals, central enterprises, etc. Rapid growth.
Increased investment in industry and research. In 2022, the company's gross profit margin was 71.5%, which was basically the same as the previous year. Among them, the gross margin of information security products fell 2.1ppt to 71.4% year on year, and the gross margin of technical services was +6.9ppt to 85.4% year on year. The gross margin of financial customers decreased 4.1ppt to 72.2% year on year, and the gross margin of corporate/government customers increased 1.6/3.8ppt to 69.6%/70.5%, respectively. In terms of expenses, the company's three expenses (sales, R&D and management expenses) increased 19.3% year on year to 280 million yuan in 2022, of which R&D/management expenses were +33.1%/39.8% year on year to 130 million yuan/57.84 million yuan respectively. The rapid increase in R&D expenses was mainly due to the company's increased investment in industry and research and active expansion of the talent pool, with R&D personnel increasing 39.9% to 431 people; sales expenses fell 4.2% year on year to 91.52 million yuan, mainly due to the fact that some sales activities and marketing activities were carried out online. Net cash flow from operating activities in 2022 fell 22.4% year-on-year to 72.87 million yuan.
Policies have been implemented at an accelerated pace, and industry sentiment has increased. Recently, the National Standing Committee passed the “Regulations on the Administration of Commercial Passwords (Revision Draft)”, which further regulates the application and management of commercial passwords. We believe that improvements on the policy side are expected to drive the release of downstream demand. At the same time, in the context of digital China and the data element market, the importance attached to data security continues to rise, and demand in the cryptographic industry is expected to attract new opportunities.
Profit forecasting and valuation
We keep our 2023/2024 earnings forecast unchanged. The current stock price corresponds to 33.2/26.3 times P/E for 2023/2024. Maintaining an outperforming industry rating and a target price of 63 yuan, corresponding to 39.8/31.5 times P/E in 2023/2024, there is 19.8% upside compared to the current stock price.
risks
Downstream demand fell short of expectations, and policy implementation fell short of expectations.