Events:

According to the company's three-quarter report for 2023, the operating income in the first three quarters of 2023 was 720 million yuan, up 18.75 percent from the same period last year; the net profit was 67 million yuan, down 1.6 percent from the same period last year; and the net profit was 61 million yuan after deducting it, up 7.87 percent from the same period last year.

For Q3 alone, 2023Q3 achieved operating income of 278 million yuan, an increase of 16.58% over the same period last year; net profit of 28 million yuan, an increase of 2.01% over the same period last year; and net profit of 26 million yuan, an increase of 0.28% over the same period last year.

Comments:

Sales investment has achieved results, and revenue has maintained a good growth trend.

Since 2022Q4, the company has increased its investment on the sales side, and the sales expenses of 22Q4-23Q3 have increased by 17.86%, 30.71%, 38.96% and 25.54% respectively for four consecutive quarters. The company's 2023Q3 has maintained good growth under the pressure of the macroeconomic environment, and we believe that the company's counter-trend expansion strategy has achieved certain results.

The gross profit margin gradually returned to the normal level, and the impact of the increase in raw material prices on the cost side gradually eliminated the company's 2023Q3 single-quarter gross profit margin of 69.68%, 0.12pct higher than 2022Q3 gross profit margin year-on-year, and 4.64pct higher than 2023Q2 gross profit margin month-on-month. Affected by the increase in the price of raw materials, the company's gross profit margin fluctuated to a certain extent in the first half of 2022. With the gradual digestion of high-cost inventory in the previous period, we believe that the company's gross profit margin has basically returned to the normal level.

Multi-product market position is leading, profitability is stable

According to the IDC report, the company's application delivery products ranked third in China's application delivery market in the first half of 2023, ranking firmly at the front end of the industry; the company's firewall won five-star evaluation in terms of performance, security, reliability and basic capabilities, while the rest were ahead of industry standards; the company's anti-DDoS products successfully won the top three market share of China's anti-DDoS hardware security products in 2022.

We believe that the company's leading products lay the foundation for the company's sound profitability. The company achieved a net interest rate of 9.31% in the first three quarters of 2023, showing robust profitability in the context of seasonal revenue in the network security industry (most of the revenue is recognized in Q4).

Profit Forecast and valuation Analysis

Taking into account the initial results of the company's countertrend investment on the sales side, Q4 revenue growth is expected to be maintained, but at the same time, taking into account the recovery of the macro environment and the company's investment on the sales side will have a certain impact on short-term profits and cash flow. We adjusted the previous forecast that the company's 2023-2025 operating income is 10.39,12.77 and 1.556 billion yuan, and the return net profit is 2.14,2.92 and 377 million yuan. With reference to the closing price on October 25, 2023, the corresponding PE is 43,32,25 times, maintaining the "buy" rating.

Risk hint

The budget input of downstream customers is lower than expected; structural changes have taken place in market demand; technology secrecy and core technology brain drain; competition leads to a reduction in gross profit margin.