Items:

The company released its semi-annual report of 2023, with operating income of 104 million yuan in the first half of this year, an increase of 10.08% over the same period last year; net profit of 10.1393 million yuan, down 29.14% from the same period last year; and non-net profit of 8.5808 million yuan, an increase of 0.56% over the same period last year.

Comments:

Performance is under short-term pressure, password service has become a new growth point. In the first half of 2023, the commercial password industry as a whole maintained a good development trend, with the company achieving a business income of 104 million yuan, an increase of 10.08% over the same period last year. In terms of products, the operating income of the password system was 41.48 million yuan, down 11.55% from the same period last year; the business income of the password system was 32.2363 million yuan, an increase of 6.00% over the same period last year; the business income of the password board was 17.7475 million yuan, an increase of 46.07% over the same period last year The operating income of password services and others was 6.0694 million yuan, an increase of 123.63% over the same period last year, and the operating income of password chips was 5.6549 million yuan. In terms of gross margin, 2023H1 reduced its gross margin by 4.02pct to 70.92%. On the expense side, the R & D expense rate, sales expense rate and management expense rate of 2023H1 are 35.50%, 29.75% and 15.27% respectively, increasing 3.52pct, 5.95pct and 1.90pct compared with the same period last year, among which R & D expenses and sales expenses vary greatly, which is mainly caused by increasing R & D investment, introducing high-level R & D talents, increasing market development efforts and introducing high-level sales talents.

Create technology and product twin engines to serve quality customers. The company lays out data security areas such as data lifecycle encryption, data rights determination, privacy protection and anti-quantum cryptography. Related products, such as homomorphic encryption machines and multi-party computing platforms, have passed authoritative third-party testing and have been successfully tested and applied. The company is a manufacturer with the richest password product system in the industry. in the field of password evaluation, it has a comprehensive password solution, which can effectively improve the implementation efficiency of customers' secret evaluation, in key industries and fields such as operators, securities, electric power and so on. made a good case accumulation.

The merger and acquisition of Jiangnan Keyou has been completed, laying out the financial industry. In June 2023, the company acquired 66.93% of the shares of Jiangnan Keyou for 151 million yuan, completed the reorganization of the board of directors of Jiangnan Keyou, obtained the control of the board of directors, and Jiangnan Keyou became a holding subsidiary of the company. Jiangnan Keyou has served the banking, insurance, securities and other financial fields in the password industry for many years, and the completion of the acquisition has broadened the track of the company's development. It is expected that Jiangnan Keyou will become an important part of the company's long-term development.

Investment advice: economic recovery is less than expected, lower profit forecast. We estimate that the operating income of the company in 2023-2025 will be 458 million RMB 6111,797 million (the original forecast for 23-24 years is 517,000,000 yuan), and the net profit of return to the mother will be 1.41 million RMB 185.00 million (the original forecast for 23-24 years is RMB 162um 218 million). In terms of valuation, with reference to the comparable company's valuation level, considering that the company is a leading company in the commercial password field and the business is in a period of rapid development, the company will be given a "recommended" rating of 50xPE in 2023, corresponding to the target price of about 62 yuan.

Risk hint: the risk that the password chip is not as expected in the market; the competition in the industry is intensified; the product development is not as expected.