In the first half of 2023, the company continues to promote the expansion strategy, increase investment in market and R & D, dig deep into value industries, obtain value orders, and achieve rapid growth in revenue. With the increase of national policy support for the network security industry and the promotion of the "one body and two wings" strategy, the company is expected to rely on its long-term accumulation of high-end network security protection capabilities and gradually strengthened market organization capabilities in recent years, further enhance its competitive position in the industry. Maintain the "overweight" rating.

Matters: the company released its mid-2023 report, with revenue of 442 million yuan in the first half of the year, up 20.15% over the same period last year; net profit of 39 million yuan, down 3.98% from the same period last year; and net profit of 35 million yuan, up 14.29% over the same period last year.

Revenue has grown rapidly, and demand from operators and governments has picked up somewhat. Since the second half of last year, the company has continued to promote the orderly expansion strategy, focusing on the areas of security and application delivery, deeply ploughing the value industry, and achieving rapid revenue growth in the first half of 2023, reflecting the strategic results of orderly expansion. In terms of products, revenue from network security products reached 325 million yuan in the first half of the year, an increase of 39.42 percent over the same period last year, while revenue from application delivery and network products reached 87 million yuan, a decrease of 15.29 percent over the same period last year. In terms of sub-industries, the operator industry performed most brightly, with revenue of 150 million yuan in the first half of the year, an increase of 27.84% over the same period last year, 142 million yuan in the government industry, an increase of 16.21% over the same period last year, and revenue in the public utilities industry reached 78 million yuan, an increase of 3.44%.

We will continue to promote the expansion strategy by taking advantage of the situation, and the investment on the cost side has been strengthened. In the first half of the year, the company achieved a gross profit margin of 67.48%, an increase of 1.58pcts over the same period last year, of which the gross profit margin of the government industry increased by 5.66pcts to 77.80%; the net profit rate was 8.91%, which decreased by 2.24pcts compared with the same period last year. The rate of sales, management and R & D expenses in the first half of the year was 41.95%, 4.07% and 27.56%, respectively. Specifically, the sales expenses in the first half of the year were 185 million yuan, an increase of 34.95 percent over the same period last year, which was due to an increase in staff expenses and business hospitality expenses; research and development expenses were 122 million yuan, an increase of 5.92 percent over the same period last year, and an increase in direct input; and management expenses were 18 million yuan, an increase of 20.67 percent over the same period last year.

Closely follow the scene and demand, market coverage continues to improve. The company is a leading network security manufacturer in China with high-end technology. With the vigorous development of the digital economy, the strengthening of network security infrastructure construction and the improvement of the company's market organization ability during the 14th five-year Plan period, it is expected to fully benefit from the expansion of industry demand. In the operator market, the company has accumulated rich practical experience, and the core competitiveness of its products is expected to be further revealed; in the financial market, the company has covered banks, non-banks and financial regulators; and in the power and energy market, the company covers the important customers of State Grid Power and Southern Power Grid and energy, and the expansion and layout of the power generation industry will be strengthened in the future. In the government market, the company will increase the coverage of services and sales staff, strengthen the expansion of Netletter and big data Bureau, and promote the landing of security products, application delivery products and Xinchuang products.

Risk factors: the company's new product research and development is not as expected, the company's downstream market expansion is not as expected, the landing rhythm of industry policy is not as expected, and the market competition is intensified.

Earnings forecast, valuation and rating: taking into account the gradual recovery of the macro-economy and the need for further investment in new directions such as Xinchuang security and artificial intelligence, and combined with the company's mid-2023 results, we adjust the company's net profit forecast for 2023-25 to 2.32 amp. 385 million (the original forecast was 276 amp 352 million).

With reference to the conviction comparable to the company in the field of application delivery, AsiaInfo security comparable to the company in the field of downstream customer operators, and the comparable 2023 average PE valuation level of Qimingxing, Qianxin and Green Alliance Technology in the overall network security business, maintain the company's 2023 target market capitalization of 14.3 billion yuan (corresponding to 62xPE), corresponding to the target price of 23 yuan, and maintain the "overweight" rating.