Event: The company released its 2023 three-quarter report. In the first three quarters of 2023, the company achieved operating income of 1,648 million yuan, a year-on-year increase of 12.63%; net profit loss of 248 million yuan, an increase of 40.85%; and gross margin increased 1.09 percentage points year-on-year.
The business structure continues to be optimized, and the share of high-margin business in Q3 has increased. Looking at the third quarter of 2023, the company achieved operating income of 644 million yuan, an increase of 10.32% over the previous year, and net profit loss of 36 million yuan, an increase of 83.09% over the previous year. In terms of gross margin, the company's share of high-margin business increased in the third quarter. The gross margin for the third quarter continued to increase 8.51 percentage points month-on-month on the basis of second-quarter growth, and 20.77 percentage points year-on-year compared to 2022.
The effect of improving quality and efficiency is remarkable, and per capita income generation has increased significantly. In the first three quarters of 2023, the company's expenses were basically the same year on year, the period fee rate fell 11.17 percentage points year on year, and the cost side maintained good control. On the R&D side, the company has completed pre-investment and comprehensive layout in cloud computing, cloud security, innovation security, data security, industrial Internet security, and vehicle network security. The R&D expenditure rate for the first three quarters dropped 7 percentage points year-on-year. On the marketing side, the company's deep industry cultivation, market decline, and channel expansion strategies have been effectively implemented. The sales expenses ratio for the first three quarters fell 0.95 percentage points year-on-year.
Key industries give full play to the benchmarking effect and promote further expansion of the overall scale. Tianrongxin's products and solutions have covered all industry scenarios such as government, operators, finance, energy, health care, education, transportation, etc., and the path for long-term high-quality development is clear. In the first three quarters of 2023, in the company's revenue segment, the local government industry increased 43.90% year on year, the operator industry increased 24.72% year on year, and the education industry increased 16.04% year on year.
AI and security are deeply integrated, and the AI cybersecurity market has ushered in new opportunities for development. In 2023, the State Internet Information Office and various departments issued the “Interim Measures on the Management of Generative Artificial Intelligence Services”, which proposed encouraging the innovative application of generative artificial intelligence technology in various industries and fields. The company applies its technical capabilities to the company's network security products, and has released various innovative products such as firewalls, intrusion prevention, botworm monitoring, IoT security access gateways, data leak prevention, big data analysis, situation awareness, intelligent intranet threat analysis, EDR, sandbox, etc., covering various fields such as border protection, security inspection, data security, security management and analysis. By the end of June 2023, the company had applied for more than 150 AI patents.
Maintain a “buy” rating. The company's cornerstone business is steady, and new business is growing rapidly. Considering the gradual weakening of the impact of macroeconomic fluctuations, it is expected that it will return to a normal development path. The company's 2023-2025 operating income is estimated at 4.70/60.4/75.1 billion yuan, and net profit of 4.3/5.7/730 million yuan, corresponding to the closing price on November 2, 2023. PE is 25.5/19.4/15.0 times, maintaining the “buy” rating.
Risk warning: competition increases risk; policy strength falls short of expectations; risk of slow deployment of new fields.