23H1 Both revenue and profit increased, and cash flow continued to improve

The company released its semi-annual report for 2023, achieving operating income of 712 million yuan, a year-on-year decrease of 14.66%, a year-on-year net profit of 415 million yuan, and a year-on-year loss increase of 92.51%. Among them, 23Q2's revenue was 383 million yuan, a year-on-year decrease of 24.59%, and net profit of the parent group was 234 million yuan, an increase of 132.21% over the previous year. Since revenue from the network security industry is mainly concentrated in the second half of the year, while expenses are rigid, and profit forecasts are maintained, the company's net profit for 2023-2025 is estimated to be 382/532/726 million yuan, respectively.

For reference, the comparable company Wind unanimously expected an average PE value of 32.6 times in '23, giving the company 32.6 times PE in '23. The target price was 15.57 yuan (previous value was 15.84 yuan), maintaining the “increase in holdings” rating.

Overall business was under pressure in the first half of the year. Third-party products affected the overall gross margin level 2023H1. The company's gross margin was 50.71%, down 9.27pct from the previous year, and the sales/management/R&D rates were 56.64%/14.36%/42.23%, respectively, up 14.58/3.13/8.6pct. The number of employees in the company was 4,836, an increase of 9.36% over the previous year. 2023H1's revenue from sales of goods and provision of labor services was 965 million yuan, a year-on-year decrease of 26.33%. Security products/security services/third-party products and services achieved revenue of 3.59/27/82 million yuan, respectively, with a year-on-year ratio of -32.53%/-6.45%/556.1%, and gross margin of 62.32%/49.78%/2.99%, respectively, and -0.40/-6.91/-15.62 pct. Third-party products and security services have increased their share of revenue, but gross margin has declined, leading to a large decline in the company's overall gross margin. The decline in gross margin of security services is mainly due to the extension of the revenue recognition cycle, but the overall gross margin of security products has remained stable.

Orders remained flat in the first half of the year, and SaaS revenue increased 25%

In the first half of the year, the company maintained a steady increase in orders from key industries such as operators and leading finance, and continued to make efforts among customers such as education and enterprises to overcome pressure from the government, transportation, and energy industries. The total amount of new orders signed was basically the same as last year. However, due to the external market environment and customer funding conditions, the contract execution cycle has been lengthened. The company continues to innovate security service capabilities and has made breakthroughs in various fields such as cloud services, intelligent connected vehicles, data classification and classification, and safe operation. The company focused on improving security delivery rates and automation capabilities. SaaS service revenue increased 25% in the first half of the year; attack surface management services won bids from key organizations such as Shanghai Agricultural Commercial Bank to meet clients' cyclical+automated full asset inventory needs, and successfully broke the ice in overseas markets.

Continue to develop new business areas such as data security and cloud security

In the first half of the year, the company released two new products, the Green League Data Safe and the Green League Data Security Inspection System. The data security capability covers more than 60%. It has formed data security solutions for 9 sub-industries, including tobacco and banking, and a “Suanhu” solution for privacy calculation based on the Green League data safe. 23H1's cloud security order volume reached 185 million yuan, an increase of 20% over the previous year, winning several industry cloud security benchmark projects. T-ONE Cloud Zhian Cloud obtained the first batch of CCRC data security certifications in the industry and achieved implementation in the government and operator industries. The number of users increased 148% year-on-year in the first half of the year. In the field of industrial Internet security, a new Green League industrial cybersecurity compliance assessment tool has been launched to quickly locate risks for regulators, key customers, system integrators, etc.

Risk warning: medical business promotion falls short of expectations; government's ability to pay is insufficient; market competition is intensifying.