Event: the company achieved operating income of 104 million yuan (+ 10.08%) in the first half of 2023; net profit of 10 million yuan (- 29.14%); and non-return net profit of 9 million yuan (+ 0.56%).

Steady growth in revenue, acquisition of Jiangnan Keyou to strengthen the layout of the financial industry.

In 2023, H1 Company overcame the influence of external environment and achieved operating income of 104 million, which was + 10.08% compared with the same period last year. In terms of products, the revenue of password boards is 18 million yuan (+ 46.07%), and that of password services and other income is 6.1 million yuan (+ 123.63%), with strong growth in related segments. With the accumulation of cryptographic technology at the bottom of the company and the innovative development needs of customers in important industries, the company is gradually developing to the business model of serving both manufacturer customers and end customers at the same time. form a two-wheel drive business model with a combination of indirect and direct demand. At the end of June, the company completed the equity merger and acquisition of Jiangnan Keyou with 151 million of its own funds, with a shareholding ratio of 66.93%, realizing the strategic layout of the financial sector and serving the end-customer market in the financial sector. We believe that the merger and acquisition of the company in the first half of the year has laid the foundation for broadening the final customer base and business model transformation. The company's customer structure is expected to improve, market coverage will increase.

Strong R & D investment to improve the product system.

The growth rate of R & D expenditure in 21 and 22 years is 36.06% and 35.22% respectively, compared with the revenue growth rate of + 2.55pcts and + 9.53pcts in the same period, the trend of strengthening R & D investment is obvious. In September 2022, the company's first self-developed password security chip XS100 was successfully mass-produced, combined with the existing cipher board, password machine and password system three product families to form a complete commercial password product system with independent intellectual property rights. Based on the self-developed cryptographic chip, it has realized the domestic replacement of the core cryptographic devices of the full range of cryptographic products, realized the independent control of the supply chain, and got rid of the dependence on overseas cryptographic products. In the field of data security, the company has made a series of investments around data lifecycle encryption, data rights determination, privacy protection, anti-quantum cryptography, etc., and related products (homomorphic encryption machine, multi-party computing platform) have passed the authoritative third-party detection, and obtained the pilot application. In the direction of the Internet of things, the company will successively launch three Internet of things chips and edge Internet of things devices in 2023, which can be applied to a variety of Internet of things security scenarios, combined with the advantages of Sanwuxinan in the cloud to form a comprehensive solution covering the "edge of cloud tube". A number of security chips for Internet of things terminals will be launched in the second half of the year, while the next generation of high-performance cryptographic chips are being developed in an orderly manner as planned. In the direction of blockchain, the blockchain encryption machine product launched by the company is one of the earliest manufacturers in China to obtain blockchain cipher certification qualification. In the future, this product will be widely used in the field of blockchain cipher application construction. In the direction of artificial intelligence, the multi-party secure computing platform developed by the company supports federated machine learning between multi-party users and realizes the secure application of machine learning scenarios such as user portraits. In recent years, the company has established a relatively complete commercial password product system with independent intellectual property rights, and has become one of the companies with the most complete range of domestic commercial password products.

The domestic commercial secret industry is facing new opportunities for rapid growth.

Marked by the formal implementation of the regulations on Commercial password Management on July 1, the construction of relevant domestic laws and regulations and standard system has been continuously improved. The core provisions and requirements of "one Law, three regulations and one Regulation" bring high compliance requirements and clear implementation rules for the replacement of state secrets. In addition, the competent departments in the fields of education, public security, housing construction, transportation, water conservancy, health and family planning, industry and commerce, and energy have all formulated overall plans or work plans for password application in this field, explicitly requiring the use of password algorithms and password products that comply with national password laws and regulations and standards and specifications. In addition, Xinchuang market has been promoted in an all-round way, and the overall market capacity and rhythm have been further improved. Password is an indispensable important link in the construction of information creation, and any network information system construction can not be separated from the underlying password application. With the comprehensive promotion of Xinchuang system, password products from chips, boards, the whole machine need to support the national secret system, and complete the replacement and transformation. According to incomplete statistics of the bidding network, since the fourth quarter of 2022, the turnover of projects related to Guomi transformation has increased by at least 51.8% compared with the same period last year. On the whole, the trend of stricter supervision and localization of basic information systems has a strong driving force for the rapid growth of domestic commercial and secret industries.

Investment suggestion

The company is the main password infrastructure provider in China, focusing on the middle and upper reaches of passwords, and has obvious technical advantages. It is estimated that the company's operating income from 2023 to 2025 is 410 million yuan, 533 million yuan and 704 million yuan respectively, and the net profit is 120 million yuan, 160 million yuan and 213 million yuan respectively, corresponding to the current PE of 54X / 41X / 31x, covering for the first time and giving a "buy" rating.

Risk hint

Downstream demand is lower than expected; technology iteration is accelerated; market competition is intensified.