The improvement in human efficiency is obvious, and the performance is expected to grow steadily throughout the year. The company achieved revenue of about 327 million yuan in the third quarter of 2023, up -0.66% year on year, and revenue of about 700 million yuan in the first nine months, up -1.89% year on year. Affected by the seasonal distribution of revenue in the cybersecurity industry, the company's revenue in the fourth quarter, especially in December, accounted for a high proportion of the year, so we expect that the company's annual revenue will grow steadily and losses will narrow throughout the year. In terms of gross margin, the company's gross margin for the first nine months was 61.65%, down 14.10 percentage points from the same period last year. In addition to market competition factors, the company's security integration business is developing rapidly. Since the gross margin of this business is low, it affects the company's overall gross profit margin. After excluding this type of business, the gross margin of the company's main business is 69.17%.

The integration with Shenzhou Digital is almost complete. Since Shenzhou Digital took a stake in the company, the company has gone from the four business directions of “business opportunity management”, “credit and innovation campaign”, “chip strategy”, and “ecological upgrading” to complete marketing framework adjustments and carry out fee control and efficiency improvements (per capita output of sales staff increased by about 44% year on year, per capita output of all company employees increased by about 21% year on year). Security chips have progressed smoothly (expected to be launched in the first quarter of next year), building a strategic cooperation ecosystem with cloud vendors (HUAWEI CLOUD, Inspired Cloud, Tianyi Cloud, Alibaba Cloud, etc.), as well as channels and key industry layouts (finance, finance) Commerce, energy, etc.), company integration and optimization The work is almost complete.

The company has two drivers of development. (1) The company has strong technical strength in the field of next-generation hardware firewalls and cloud security, especially the introduction of security chips, which will greatly enhance the product's cost performance ratio and innovation layout, and effectively enhance competitiveness; (2) the successful completion of integration with Shenzhou Digital will play an important role in the company's business opportunity management, channel expansion and ecological construction, solving the company's long-standing market shortcomings. We are optimistic about the long-term stable development of the company.

Investment advice. We expect that in 2023-2025, the company will achieve revenue of 9.91 (-5%)/12.71 (-8.36%)/16.61 (-12.67%) of RMB 16.61 (-12.67%), and realized net profit of -97.96 million (-63.97 million), 15.93 million (-75%) and RMB 101 million (-41.6%) respectively (adjustment factors: adjusted revenue growth rate and decline in gross margin).

Taking into account factors such as the company's strength in the field of network security hardware architecture and security chips and improvements in market expansion capabilities, we gave the company 5 times PS in 2023 (not adjusted), then the target market value was 4.956 billion yuan (-4.9%), and the target price was 27.50 yuan/share (-4.9%), maintaining the “superior to market” rating.

Risk warning. Factors such as the company's market development fell short of expectations; the company's security chip launch progress fell short of expectations; and sudden cybersecurity incidents affecting the company's brand.