Event: according to the company's semi-annual report of 2023, 23H1 achieved 676 million yuan in revenue, down 2.15% from the same period last year, and its net profit was 64.51 million yuan, down 9.33% from the same period last year. The net profit from non-parent was 61.79 million yuan, down 8.88% from the same period last year, down 18.25% from the same period last year, and its net profit was 21.28 million yuan, down 29.95% from the same period last year.

In the era of digital economy, various services continue to advance.

The company's 23H1 business continues to promote, sub-business point of view: 1) embedded security products: 23H1 achieved revenue of 576 million yuan, an increase of 13.28% over the same period last year. With rich experience in COS system development, advanced manufacturing level and large-scale operation advantages, the company continues to maintain a high market share in finance, social security, communications, transportation and other fields. In response to the personalized and diversified needs of banks and other financial institutions, the company is pushing through the old and bringing forth the new, constantly improving its brand image and market influence, and actively responding to the adverse situation of market growth slowing down during the switching of financial cards from PBOC3.0 to PBOC2018 during the reporting period. The company actively responds to the policy advocacy of the Ministry of Human Resources and Social Affairs to actively promote the "all-in-one card" service for residents, and explores the social security card as the basic carrier of the government's livelihood services. solutions for the application of financial subsidy funds for the benefit of the people and agriculture, government services, medical treatment and drug purchase, old-age services, transportation, cultural experience, tourism and rural revitalization, etc. Participate in three generations of social security cards, people's livelihood cards and the construction of "all-in-one Card" application platform. The company continues to deepen cooperation and research with the three basic telecommunications enterprises in communication technology, innovative products and software applications, in order to research cooperation and enable business development. 2) Smart hardware business: 23H1 realized revenue of 57.42 million yuan, an increase of 89.03% over the same period last year. Through in-depth on-site research, the company systematically combed the grass-roots government services and convenience services, and launched a comprehensive solution of "Netcom" grass-roots government services, which integrates terminal equipment, system platform and operation services. The program comprehensively uses artificial intelligence, big data, RPA digital staff, knowledge graph, video cloud seats and other technologies to promote grass-roots people to handle affairs "nearby, intelligently and at one time". At present, it has been implemented in Hubei and other places, and is expected to continue to expand promotion. In response to the business needs of customers in the financial field of "mobile extension" and "card exchange with the same number", the company has launched a series of portable business card printing machines to help customers achieve door-to-door service and get customers efficiently. In the first half of the year, the company completed the patent layout of a number of new products, and realized mutual certification adaptation with Kirin Software and Universe Software on a variety of domestic CPU architecture platforms, effectively supporting the digital upgrading construction of industry customers and independent and controllable security requirements of information security, enhancing product competitiveness, and laying a solid foundation for the promotion of the company's intelligent hardware business. 3) Software and services: 23H1 realized revenue of 33.93 million yuan, down 73.67% from the same period last year. The company actively responds to the policy advocacy of digital government, digital human society and data elements, and actively participates in the implementation of the digital upgrading project of government services throughout the country. The company's business archives integration business has been applied in Guangdong, Qinghai, Jiangxi, Jiangsu, Zhejiang, Hunan, Gansu, Fujian, Henan and other places. The company has joined hands with some provincial and municipal social security departments and government centers to explore the "one-window" reform based on the current situation of social security business separation, adopt the model of "standard + software + manual service", and promote the transformation from "project construction mode" to "project operation mode". Under the premise of obtaining customer authorization, aggregating archival digital resources according to customer needs, providing a new scene, convenient and efficient mode of innovative management and utilization of electronic archives, laying the foundation for comprehensively stimulating the potential of data elements in the field of human society, good social benefits have been achieved.

The company has advanced production technology, rich experience, high-quality customer resources, outstanding core competitiveness of the company to create a variety of smart card product matrix, obvious competitive advantage. In the financial field, the company has obtained the certification of six major financial card security organizations at home and abroad, such as China UnionPay, Visa Inc, MasterCard, American Express Co, JCB, Dalai and so on. The company provides debit cards, credit cards, self-service business card making equipment, intelligent financial terminals and other products and services for more than 200 bank units, such as large state-owned commercial banks, joint-stock banks, urban commercial banks, rural credit cooperatives, etc., and always maintains the market dominant position in the field of IC cards of domestic banks. The company provides major banks with IC card product design, research and development, production to post-sale one-stop service, a number of original design products to achieve the market debut, a number of projects are issued exclusively in the domestic market. In the field of social security, in the past ten years, the company's sales of social security cards accounted for a high proportion of new social security card holders in that year, and firmly occupied the leading position in the subdivision of social security cards. In the field of communications, the company provides communication cards, IoT network cards and other products to the four major mobile communication operators, including China Mobile Limited, China Telecom Corporation, China Unicom and China Radio and Television, and the winning share of the main products has always remained in the first echelon. In the field of digital RMB related products and technical services, the company has relatively leading product technology and R & D capabilities on the user side, acceptance side and system side of the digital RMB. Closely cooperate with operating institutions and industry applications to create a bright spot project with demonstration effect, join the "Qingdao Digital Financial Industry Alliance", and participate in a number of national initiative, launch, and the first batch of digital currency pilot projects. Provide the first domestic "digital RMB joint card" jointly launched by Shenzhen Shenzhen Tong Co., Ltd., the digital RMB SIM card hard wallet of Qingdao rail transit "no network and no electricity" payment, Chengdu Universiade badge theme hard wallet, etc., and actively promote the landing of digital RMB in inclusive finance, cross-border payment, livelihood protection, transportation, retail transactions and other fields. Deeply participate in the construction of digital RMB ecosystem in China.

Profit forecast and investment advice:

As a leader in the smart card industry, the company has advanced production technology, rich experience and high-quality customer resources; under the background of the replacement of the third-generation social security card and the continuous promotion of digital RMB, it is expected to continue to benefit in the future; the communication field is also full of opportunities, and the communication products and solutions superimposed with digital identity and digital currency applications have broad prospects. It is estimated that the 23-25 net profit of the company will be 2.02 trillion yuan, maintaining the "overweight" rating.

Risk tips: risks brought by the electronic trend of social security and financial payment industries; risks of raw material price fluctuations; new technology research and development and commercial applications are not up to expectations; risk of shareholder holdings reduction, etc.