Anheng Information's revenue in the first three quarters of 2023 was +16.1% year-on-year, meeting market expectations. The company announced its performance in the first three quarters: revenue increased by +16.1% year-on-year to 1.21 billion yuan, net loss attributable to parent increased by 17.2% year-on-year to-540 million yuan, and net loss deducted from non-parent increased by 16.1% year-on-year to-560 million yuan. Single third quarter: revenue increased by +1.3% year-on-year to 510 million yuan, month-on-month +42.4%; net loss attributable to parent increased by 48.6% year-on-year to-130 million yuan, narrowing by 42.1% month-on-month; net loss deducted from non-parent increased by 42.3% year-on-year to-130 million yuan, narrowing by 41.1% month-on-month, basically in line with market expectations.

Trend of development

The gross profit margin of security services increased. In the first three quarters, the company continued to exert efforts in the fields of data security/cloud security/localization security/MSS hosting operation services, and the overall business maintained stable growth. At the product level, the overall contract amount of data security increased by 50%+ year-on-year, the contract amount related to MSS security custody operation service increased by 50% year-on-year, and the contract amount related to localization increased by nearly 170% year-on-year. At the industry level, the revenue of central state-owned enterprises increased by 170% year-on-year, the revenue of operators increased by 80% year-on-year, and the network information/education/medical care/government all achieved rapid growth. In August, the company officially released the large model of safety vertical domain, and the safety operation platform was upgraded brand-new. We believe that with the continuous improvement of product system and optimization of sales strategy, the Company is expected to continue to explore the market and increase revenue scale. In the first three quarters, the gross profit margin of the company was-1.4ppt to 56.0% year-on-year,-3.0ppt to 58.9% year-on-year in the third quarter, and +7.3ppt month-on-month, among which the gross profit margin of security service business increased by more than 4ppt year-on-year, and the competitiveness of advantageous products was prominent.

We continued to promote cost control and improve profit quality on a month-on-month basis. In the first three quarters, the total of the three expenses increased by +14.1% year-on-year to 1.36 billion yuan, with a significant decrease in growth compared with the same period last year (+29.8% year-on-year), highlighting the effectiveness of expense control; among them, the sales/R & D/management expense ratio changed from +1.1/-1.1/-2.0ppt to 56.8%/43.5%/12.4% year-on-year respectively, and the sales per capita efficiency increased by 20%+ year-on-year. The total of three fees in the third quarter increased by +5.9% year-on-year to 480 million yuan, and the month-on-month increase was +3.3%. The net interest rate of parent in the first three quarters was-0.4ppt to-44.4% year-on-year,-7.9ppt to-24.8% year-on-year in the third quarter, and +36.2ppt month-on-month. In the first three quarters, the net interest rate was flat at-46.0% year-on-year, from-7.5ppt to-26.1% year-on-year in the third quarter, and +37.1ppt month-on-month. The net outflow of operating cash flow in the first three quarters increased by RMB 130 million yuan to RMB-680 million yuan on a year-on-year basis, and the year-on-year change of new operating assets/liabilities in the current period was RMB-0.5/-0.4 billion yuan; the net outflow of operating cash flow in the third quarter expanded by RMB 70 million yuan to RMB-100 million yuan on a year-on-year basis, narrowing by RMB 60 million yuan compared with the previous quarter.

Profit forecast and valuation

Maintain the outperformance rating of the industry, consider the uncertainty of the recovery rhythm of downstream demand, reduce the revenue of the Company by 3.3%/8.2% to CNY 24.8/29.7 billion in 2023/24, consider the gradual promotion of cost control by the Company, and maintain the net profit of parent company in 2023/24 basically unchanged. Considering the downward trend of risk preference caused by macro environment fluctuation, the target price is lowered by 21.3% to 172.9 yuan, corresponding to 5.5/4.6 times 2023/24 P/S, and the current stock price corresponds to 3.8/3.1x times 2023/2024 P/S, with 46% upside.

Risk

Downstream demand is not as expected, and new product expansion is not as expected.