Event: recently, the company released a report for the third quarter of 2023, with operating income of 1.207 billion yuan in the first three quarters, + 16.14% year-on-year, and net profit of-536 million yuan,-17.2% of the same period last year. The income in the third quarter was 512 million yuan, + 1.35% compared with the same period last year, and the net profit returned to the mother was-127 million yuan,-48.56% compared with the same period last year. The performance is basically in line with expectations.

Q3 revenue has been slightly affected, and emerging security continues to grow high. According to the company's announcement, revenue growth slowed in the third quarter compared with the second quarter, mainly due to the gradual recovery of the macro-economy, and safety basic products are expected to be under short-term pressure. However, the growth rate of the company's emerging security business is gratifying. According to the company's official website, the overall contract value of data security in the first three quarters grew by more than + 50% compared with the same period last year, while the contract value related to MSS (security hosting operation service) grew by more than + 50%. As a "star" (high growth, high share) product in the next stage of the company's development, the growth rate is gratifying. The growth rate of contracts related to Xinchuang has exceeded + 170%. At the same time, central state-owned enterprises and operators, as the company's high-growth industries, the industry income growth rate reached + 170% and + 80% respectively compared with the same period last year, which is particularly valuable under the premise that the overall investment downstream is more cautious and the procurement cycle is lengthened.

The gross profit margin of security services increased, while the growth rate of three fees decreased significantly. According to the company's announcement, in the first three quarters, the gross profit margin was 56.03%, year-on-year-1.37pct. In the third quarter, the gross profit margin was 58.91%, year-on-year-3.02pct, but month-on-month + 7.32pct. The decline in overall gross profit margin is mainly due to changes in revenue structure. In the first three quarters, the gross profit margin of key business security services was + 4pct year-on-year, and personnel efficiency continued to improve. The company maintains the investment intensity of expenses. In the first three quarters, the sales / management / R & D expenses were respectively RMB 686 million, RMB 1.49 billion, compared with the same period last year, which was + 18.33%, 0.17%, 13.22%, indicating positive changes on the demand side.

Release the Hengnao security model and take the lead in enabling safe operation. According to the company's official website, in August, the company released the Hengnao security model and enabled the security operation platform to build a troika with Data, AI and Service as the center, and provided security during the Asian Games, which improved the safety operation efficiency by more than 70%. As a large model of security vertical domain, Hengnao can help security operation analysts and security operation managers to reduce the threshold of professional knowledge, improve management efficiency and human-computer interaction experience, and achieve comprehensive threat intelligence analysis and incident response.

Investment analysis: maintain a "buy" rating. During the period of macroeconomic recovery, the superposition company maintained its investment intensity on the cost side, which put pressure on its phased performance, adjusted its profit forecast, and lowered the growth rate of safety basic products for 23 years to + 0% (the original forecast was + 10%). The annual income in 23-24-25 is expected to be 25.31 trillion yuan (4.310 billion yuan) (the original forecast is 2.668 pounds 3.547 billion yuan). The annual net profit of homing in 23-24-25 is-0.44 pound 0.72 billion RMB 238 million (original forecast-0.59 plus 109 pound RMB 316 million). The company's data security, MSS, Xinchuang and other core business orders have maintained a high growth rate, the medium-and long-term development of the spindle is healthy, Hengnao has greatly improved the efficiency of safe operations, and it is expected that the company's profits will climb in the future. We use the PS valuation method, comparable to the company average PS6.4x, we give 2023 PS6.0x, corresponding to the 2023 target market value of 15.2 billion, an increase of 62%, maintaining the "buy" rating.

Risk tips: intensified competition in the industry; core brain drain and matching; internal control fees are not as expected.