Core viewpoints

Since the second half of 2022, industry demand has gradually recovered, overseas market demand has increased, the company has made every effort to promote project signing and implementation progress in domestic and foreign markets, some projects have been successfully accepted and confirmed revenue, and 2023H1 has achieved a turnaround from losses to profits. In a single quarter, according to the forecast median, 2023Q2 is expected to achieve a net profit of 11 million yuan, a year-on-year turnround, but it has declined compared with the previous year. We believe that the fluctuation of the company's quarterly performance is mainly related to the delivery rhythm of the project, and the peak demand in the end-user market usually occurs in the second half of the year, especially in the fourth quarter, resulting in the company's product orders and revenue recognition mainly concentrated in the second half of the year. Therefore, it is recommended to stand in the annual dimension to evaluate the performance of the company.

Event

The company issued the "semi-annual performance Forecast of 2023", which is expected to achieve a net profit of 60 million yuan to 80 million yuan in the first half of this year, compared with a loss of 106 million yuan in the same period last year; it is expected to deduct a net profit of 35 million yuan to 55 million yuan in the same period last year, with a loss of 108 million yuan in the same period last year.

Brief comment

1. The network visualization industry recovers and the company's performance returns to growth.

The company expects to achieve a net profit of 60 million yuan to 80 million yuan in the first half of 2023, compared with a loss of 106 million yuan in the same period last year; it is expected to deduct a net profit of 35 million yuan to 55 million yuan in the same period last year, compared with a loss of 108 million yuan in the same period last year. From 2021 to 2022, the company experienced a decline in revenue and profit and a loss in 2022. First, the government procurement of broadband network products has been delayed; second, mobile network products are in the transition from 4G to 5G, and the procurement has not yet been sold. Since the second half of 2022, industry demand has gradually recovered, overseas market demand has increased, the company has made every effort to promote project signing and implementation progress in domestic and foreign markets, some projects have been successfully accepted and confirmed revenue, and 2023H1 has achieved a turnaround from losses to profits. In a single quarter, according to the forecast median, 2023Q2 expects to achieve a return net profit of about 11 million yuan, which is somewhat lower than the previous month. For this, we believe that the company's quarterly performance fluctuation is mainly related to the delivery rhythm of the project, and the peak demand in the end-user market usually occurs in the second half of the year, especially in the fourth quarter, resulting in the company's product orders and revenue recognition mainly concentrated in the second half of the year. Therefore, it is recommended to stand in the annual dimension to evaluate the performance of the company.

2. Broadband network products: government procurement has warmed up and is expected to continue to grow in the future.

The company's broadband network products are used in the field of Internet traffic analysis, and carry out original data collection, in-depth detection, layered analysis and on-demand screening for network layer and transport layer traffic, and cooperate with other systems to realize the monitoring, statistics and control of network operation quality, protocol standards and bearer services, as well as applications in network management, information security and other fields, mainly for operators and government and enterprise departments. In 2021 and 2022, the company's broadband network business revenue continued to decline, mainly affected by the adjustment of the pace of government procurement and the epidemic, and the signing and implementation of some orders from customers in major domestic industries and the international market were delayed. In September 2022, the company issued the "announcement on the signing of contracts by wholly-owned subsidiaries", winning the bid for China Mobile Limited's engineering equipment procurement project, with a total amount of about 198 million yuan, marking the resumption of related project procurement. We believe that the company's products are expected to be used in the field of artificial intelligence in the future. With the explosion of AIGC, the State Internet Information Office jointly issued the interim measures for the Management of generative artificial Intelligence Services, and the procurement demand of relevant departments is still expected to increase.

3. Mobile network products: 5G products are expected to be expanded.

The company's mobile network products are used in the field of wireless signal analysis, for electromagnetic space signals and mobile network air port signals for spectrum acquisition, signal analysis, data extraction and other processing. According to the application scenario, it can be divided into fixed and mobile forms, supporting single point deployment and network deployment, mainly used in government departments and enterprises and institutions. The company increased investment in the research and development of 5G mobile network products, further improved the product series, and successively released full-standard, fully integrated, full-form mobile network products, fully covering user scenarios, and further enhancing the market competitiveness of the products. According to data from the Ministry of Industry and Information Technology, by the end of May 2023, the total number of mobile phone subscribers of the three major operators had reached 1.708 billion, of which 651 million were 5G mobile phone users, accounting for 38.1% of mobile phone users, accounting for 4.8pct5G penetration at the end of last year. Customer demand for data collection of 5G mobile network has also further increased. The company's mobile network products are expected to expand.

4. Profit forecast and investment suggestions.

The company is the leader of network visualization, covering the fields of cyberspace data extraction, data storage and computing, data analysis and mining, data application and security services. Since the second half of 2022, the procurement of broadband network products has obviously picked up, and with the upgrading of AI supervision, the procurement of relevant departments is still expected to improve.

Benefiting from the increase in the penetration of 5G users, mobile network products are also expected to expand. In addition, with the end of the epidemic and the smooth expansion of the company's business in overseas markets, we expect that from 2023 to 2025, the company is expected to achieve a net profit of 199 million yuan, 301 million yuan and 393 million yuan, corresponding to PE 42X, 28X and 21X, maintaining a "buy" rating.

5. Risk hint.

Affected by government expenditure, the procurement of some projects may be delayed, affecting the company's short-term performance; changes in the international situation, geopolitical influence, overseas business expansion may be blocked; US sanctions may affect the supply of exchange chips and FPGA; as the demand for mobile network products increases, new manufacturers are attracted to enter this field, or a price war occurs, resulting in a decline in gross profit margin The company's network visualization back-end business or coincides with some customers, which is easy to compete with customers, thus affecting the sales of front-end products; the company's business expands from G to B, with more personnel expansion and high costs. however, part of the business is still in the market cultivation, unable to generate scale income, thus affecting the profit level.