occurrences

The company released its 2023 semi-annual report. 2023H1's revenue was 712 million yuan, a year-on-year decrease of 14.66%; net profit attributable to owners of the parent company was a loss of 415 million yuan, and losses increased 91.72% year-on-year.

In a single quarter, 2023Q2 achieved revenue of 383 million yuan, a year-on-year decrease of 24.59%, a year-on-year net profit loss of 234 million yuan, and a year-on-year increase of 131.28% in losses.

reviews

The order structure is skewed towards service, which affects the revenue confirmation structure. The actual order growth rate is better than the apparent growth rate by industry. In the first half of the year, the company's energy, finance, operators, government and other industries achieved revenue of 1.98, 1.23, 1.79, and 212 million yuan respectively, down 9.57%, 8.71%, 14.76%, and 21.67% year-on-year respectively. Among them, the decline in the government industry was obvious, and the downward trend in energy and financial revenue was relatively insignificant.

By business, the company's security products, security services, and third-party products and services achieved revenue of 359 million, 270 million, and 82 million, respectively, accounting for 50.46%, 37.97%, and 11.54% of revenue, respectively. Safety products and security services decreased by 32.53% and 6.45%, respectively, and third-party products and services increased 556.10% year-on-year. The decline in the security service business was weaker than that of security products. We believe it shows the greater demand resilience and customer stickiness of the security service business. Third-party product revenue is growing rapidly, mainly due to the company's confirmation of integration projects in the first half of the year.

Judging from the order structure, the company's share of service contracts increased compared to the same period last year and the full year of last year. As a result, the cycle for confirming some orders as revenue became longer, which affected the pace of revenue recognition. However, the company's actual new order situation is better than its apparent revenue performance:

Steady growth in orders from key industries such as operators and leading finance companies? We continue 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 is basically the same as last year

Emerging areas: Internet of Vehicles orders doubled, cloud security orders increased 20% year over year, revenue from newly released automated penetration testing services grew rapidly

23Q2 The fluctuation in gross margin is mainly affected by the revenue structure. Looking at the long-term trend, it is not representative

The company's gross profit margin of 2023H1 was 50.71%, down 9.27pct from 2022H1; of these, 23Q2 gross profit margin was 40.56%, down 17.28pct from 22Q2. We believe that the main reason for the decline in the company's gross margin in the first half of the year was the increase in the share of the company's integrated business revenue, while the gross margin of the integrated business was lower, which lowered the overall gross profit margin. Looking at the whole year, we believe that as revenue from safety products and security services with high gross margins accelerates in the second half of the year, the company's gross margin is expected to rise.

Accelerate innovative layout, comprehensively improve automation and service capabilities. 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. At the same time, the company focused on improving security delivery rates and automation capabilities, and SaaS service revenue increased 25% in the first half of the year. In terms of AI technology, the company actively integrates machine learning capabilities to create automated data classification and grading services, quickly generates and matches models in various industries, greatly improves recognition accuracy through iterative training, and provides intelligent support for data security management.

Data security: It has developed data security solutions for nine sub-industries, including tobacco, banks, government, public administration, car companies, hospitals, universities, state networks, and operators, as well as a “Suanhu” solution for privacy computing based on Green League data safes.

Cloud security: In the first half of the year, the company's order volume reached 185 million yuan, an increase of 20% over the previous year, winning several industry cloud security benchmark projects.

AI: Aiming at rapidly evolving AI technology, the company uses AI capabilities accumulated over many years to empower operation services. The intelligent Q&A robot connects with T-ONE Cloud and ISOP series products to provide a new interactive framework for safe operation.

The “Fengyunwei” security model was released, and the “Fengyunwei” security model began. On September 1, 2023, the company held the 2023TechWorld Green League Technology Smart Security Conference with the theme of “Empowering a New Future with New New Digital Intelligence” in Beijing to launch products such as data safes and the “Fengyunwei” security model. Among them, the “Fengyunwei” security model is based on extensive security expertise training, and has built a network security operation auxiliary decision-making system covering various scenarios such as security operation, detection and response, attack and defense confrontation, and knowledge question and answer. We believe that the release of the “Fengyunwei” security model further reflects the technical strategy that the company has always adhered to — “smart security”. It is expected to be integrated with the company's products in the long term to reshape the work paradigm in the security industry. Through the big model, the three major issues of command and scheduling of actual combat situations, auxiliary decision-making with red and blue confrontation, and improved safety operation efficiency are solved.

Profit forecasting and valuation

Considering that the company's revenue growth in the first half of the year was under pressure, but the growth rate of new orders was good, we predict that the company's revenue for 2023-2025 would be 2,978, 34.61 billion yuan, and 4.130 billion yuan, respectively, and net profit of 214 million, 319 million yuan, and 412 million yuan respectively. Referring to the closing price on September 1, 2023, the corresponding PE for 2023-2025 was 38, 25, and 20 times, respectively, and given a “buy” rating.

Risk warning: Budget recovery for downstream customers fell short of expectations; gross margin continued to fluctuate due to changes in revenue structure, new product development and implementation fell short of expectations, and industry competition intensified.