Matters:
On October 25, the company released its 2023 three-quarter report. The first three quarters achieved operating income of 1,648 million yuan, a year-on-year increase of 12.63%; net profit loss of 248 million yuan, loss of 420 million yuan in the same period last year; and loss of non-net profit of 264 million yuan, loss of 458 million yuan for the same period last year.
Commentary:
Revenue is growing steadily, and profitability is improving. In the first three quarters of 2023, the company achieved revenue of 1,648 billion yuan, a year-on-year increase of 12.63%, of which the local government industry increased by 43.90%, the operator industry by 24.72%, and the education industry by 16.04%. In terms of gross margin, the first three quarters of 2023 were 62.31%, up 1.09pct year on year. Among them, gross margin for the third quarter reached 73.03%, continued to increase 8.51 pct over month and 20.77 pct year-on-year, mainly due to the increase in the share of high-margin business.
The cost side is continuously optimized, and the effect of improving quality and efficiency is remarkable. The company's R&D expense ratio, sales expense ratio, and management expense ratio were 35.51%, 39.03%, and 12.98% respectively in the first three quarters of 2023, down 7 pct, 0.95 pct, and 3.22 pct year-on-year. The overall cost rate decreased by 11.17 pct year on year, and the cost was basically the same as year on year. The reduction in the R&D cost rate is due to the fact that the company has completed pre-investment and comprehensive layout in the direction of cloud computing, cloud security, innovation security, data security, industrial Internet security, and vehicle network security; the decline in the sales expenses rate is due to the company's deep industry cultivation, market decline, and effective implementation of the channel expansion strategy.
AI capabilities have been improved at an accelerated pace, and the Tianwen Big Model has been released. Since 2019, the company has applied AI technology and successively released various innovative products such as firewalls incorporating AI technology, resulting in rich technological achievements in large-scale model technology. In 2023, the company further promoted AIGC safety testing and research, and carried out research, verification and application of various algorithms and models based on years of large-scale model technology accumulation. In September, the Tianrongxin Tianwen Big Model appeared at Cybersecurity Week.
Investment suggestions: We expect the company's 2023-2025 operating income to be 4.583 billion yuan, 5.81 billion yuan, and 7.256 billion yuan, corresponding growth rates of 29.3%, 26.6%, and 25.1%; net profit of net profit of 453 million yuan, 600 million yuan, 777 million yuan, corresponding growth rates of 121.0%, 32.4% and 29.4% respectively; corresponding EPS (dilution) of 0.38 yuan, 0.51 yuan, and 0.66 yuan respectively. In terms of valuation, referring to comparable companies, we gave the company 35xPE for 2023, corresponding to the target price of 13.3 yuan, maintaining the “recommended” rating.
Risk warning: industry competition intensifies; policy promotion falls short of expectations; product application falls short of expectations.