Introduction to this report:

Under the influence of the confidential evaluation method released on October 7, the prosperity of the industry has improved markedly. As a PKI leader, the company's innovative business expansion is accelerating based on a cloud cryptographic platform, and security products such as superimposed cameras are rapidly released, and revenue growth will exceed expectations.

Key points of investment:

Maintain an increase in holdings rating and lower the target price to $20.55. Considering the impact of the company's customer budgets and revenue recognition, the 2023-2024 (new 2025) EPS was lowered to 0.21 (-0.49) /0.44 (-0.85) /0.65 yuan, and the target price was lowered to 20.55 (- 7.45) yuan, corresponding to 47 times PE in 2024.

The company has formed a dual-engine driving model of innovation and general safety, and future revenue growth will exceed expectations.

As a leader in the PKI field, while focusing on the core PKI business, the company pioneered cryptographic services to the cloud and took the lead in building a cloud cryptographic service platform. The industry's innovation and innovation business progressed rapidly, and was awarded the “Top 10 Innovation Capabilities” TOP7. Combined with the fact that the share of general security revenue continues to rise, benchmark cases of the Internet of Vehicles have been implemented frequently, and video surveillance security products are about to be released, future revenue growth will exceed expectations.

Core logic: Due to PKI's high technical barriers and qualifications, the long-term leading position has accumulated technical and customer barriers, strong bargaining power plus a high percentage of self-developed products, gross margin levels have remained high for a long time. As PKI critical evaluation demand boosts industry prosperity, and the pace of PKI national secret algorithm upgrading and transformation accelerates, based on its high market share, core business revenue is expected to further accelerate in the next three years; The company has built integrated camera security software and hardware products, taking into account the broad market for video surveillance With the high value volume of basic and camera security products, it is expected that business in this field will expand at an accelerated pace in the future. At the same time, with the rapid increase in PKI demand in the Internet of Vehicles scenario, benchmark cases with SAIC Motor and other customers are expected to be rapidly replicated and promoted, so the company's overall revenue growth rate will increase significantly, and the company's losses in the first three quarters of 2023 have also narrowed sharply, and the development logic has been verified.

Catalyst: The growth rate of the camera security business has accelerated significantly, and the company has participated in the release of safety standards

Risk warning: industry development falls short of expectations, government budget expenditure is insufficient