The second quarter was the lowest growth rate for the whole year. The company released the 23H1 interim report. In the first half of the year, the company achieved revenue of 104 million yuan (+10.08%), net profit of 110 million yuan (-29.14%), minus non-net profit of 09 million yuan (+0.56%). Looking at Q2 alone, the company achieved revenue of 67 million yuan (+0.83%), net profit of 14 million yuan (-40.82%), net profit of 0.13 million yuan (-32.81%) after deducting non-net profit of 013 million yuan (-32.81%). The growth rate slowed in the second quarter, mainly due to weak economic recovery in the first half of the year, and the speed of the company's business development was also affected to a certain extent.
Gross margin has recovered quarterly, and cost investment has continued to increase. The company's gross margin increased in the second quarter, reaching 71.99% in 23H1. The company increased investment, and sales, management and R&D expenses increased by 37.63%, 25.74%, and 22.21% year-on-year. By product, the company's overall password revenue was 42 million yuan, password board revenue was 18 million yuan, cryptographic system revenue was 32 million yuan, cryptographic service revenue was 06 billion yuan, and cryptographic chip revenue was 06 billion yuan; cryptographic machines and cryptographic systems are still the main contributors, and cryptographic chips have reached the level of last year. Looking at downstream customers, the revenue of product solution solvers was 83 million yuan, and the final customer revenue was 20 million yuan. Downstream PKI vendors and security vendors as a whole are in a weak state of recovery, and the company as an upstream has also been affected to a certain extent.
With the merger and acquisition of Jiangnan Keyou, it is expected that performance will begin to increase in the third quarter. The company acquired 66.9% of the shares of Guangzhou Jiangnan Keyou Technology Co., Ltd. with its own capital of 151 million yuan. Jiangnan Keyou will become the company's holding subsidiary. Jiangnan Keyou's revenue for the year 21/22 was 118/123 million yuan, and net profit was 0.22/118 million yuan. It is expected that the third quarter will begin to be combined. There are many Keyou products mainly on the cryptographic application side. In particular, cryptographic applications in important industries such as finance occupy a dominant position. The company continues to increase its downstream application side expansion. For financial and other industries where cryptographic applications have been used earlier, it is most direct to enter this field through the acquisition of companies in this field.
The commercial secrets management regulations began to be officially implemented in July of this year, and we are firmly optimistic about the development of the commercial secrets market. Since the introduction of the Cryptographic Law in 2020, the number of cryptographic reform and secret evaluation market projects has continued to grow rapidly. A total of 7159 projects were tracked in 2022, an increase of 129.7% over the previous year. On the other hand, according to the “three simultaneous and one evaluation” requirements, passwords have become standard in credit and innovation fields such as party government, electricity, and finance. The company has the richest cryptographic product system in the industry, and is also based on self-developed cryptographic chips to achieve localized replacement of core cryptographic devices for a full range of cryptographic products. In the field of cloud cryptography, the company has cooperated extensively with HUAWEI CLOUD, Tianyi Cloud, and Inspur Cloud. The combined crypto review and Xinchuang are both expected to accelerate in the second half of the year. We are optimistic about the accelerated development of commercial secrets.
Risk warning: Macroeconomics affects IT spending; industry competition intensifies; new business expansion falls short of expectations.
Investment advice: Maintain a “buy” rating. Based on the weak recovery of the industry in 23 and the combined factors of Jiangnan Science and Technology, it is estimated that the revenue for 2023-2025 will be lowered from 477/659/888 million yuan to 464/666/864 million yuan. The growth rate is 37%/43%/30%, respectively, and the attributable net profit is 135/2.01/267 million yuan, corresponding to the current PE of 47/32/24 times, maintaining the “buy” rating.