Leading military cyber security enterprises. For the first time, the company was covered by a “buy” rating. It is a leading supplier of informatization and military cybersecurity products in China. It is one of the few domestic enterprises with confidential qualifications and high-barrier core cybersecurity technology. The company has broad requirements for military space-borne and airborne communications network security. The company is expected to fully enjoy industry dividends and increase its market share. Since this year, the company has expanded its confidential business, which is expected to begin the company's second growth curve. We expect the company to achieve net profit of 1.07/1.63/243 billion yuan in 2023-2025, corresponding to the current stock price PE of 60/40/27X, respectively. Comparable company valuations in 2024, Wind agreed that the average PE value is 50 times higher. Considering the company's high proportion of satellite support and high technical barriers, we are expected to develop rapidly with the satellite Internet. We have given the company 50 times PE for 24 years, corresponding to the target price of 88.50 yuan. For the first time, we gave the company a “buy” rating.
The company started with informatization business and focused on cybersecurity. Jiayuan Technology was founded in 1994, gradually accumulating technical advantages in informatization business, and entered the network information security industry in 2019. Currently, it has formed an integrated two-wing business structure with software and hardware and “information+network security”, and has focused on developing network security services in recent years. The chairman of the company holds 37.7% of the shares, and the shareholding structure is stable. The implementation of equity incentives in 23 years is expected to increase the enthusiasm of middle management and core technical backbone. In recent years, the company has continuously optimized its product structure, the share of network information security business and military applications has continued to increase, and the gross margin level has been clearly optimized. In the first three quarters of 2023, the company achieved operating income of 186 million yuan, an increase of 15.10% over the previous year, and realized net profit of 32 million yuan, a year-on-year decrease of 11.75%. The fourth quarter is the peak period for the company's product delivery. Revenue and profit are confirmed centrally, and the annual performance is expected to grow rapidly.
The space-borne and airborne sectors have long slopes and heavy snowfall, and the information technology business has expanded horizontally. Currently, many organizations in China have declared future satellite launch plans to ITU. The number of satellites planned for multiple constellation plans is large, and the number of satellites already announced exceeds 36,000. Satellites require high security of information transmission, and encryption equipment is highly necessary. According to ITU launch rules, China will need to deploy more than 1,000 satellites per year in the next 14 years. Satellite network construction will combine long-term demand for military aircraft expansion and replacement to jointly build a long slope heavy snow track for network security products. According to the company's prospectus, it is estimated that the market demand for Starship and airborne products during the “14th Five-Year Plan” period will be 69-13.8 billion yuan and 8-3.2 billion yuan respectively.
Commercial secret products opened up a second growth curve, and secret reviews and national secret reforms accelerated industry penetration. The company launched 11 commercial cryptographic products in August 2023, entering the commercial secret field. The company has developed a variety of products based on PCIe buses and nationwide CPU+FPGA architectures. Applicable products include blade-type cryptographic modules, high-power cryptographic resource pools, high-speed link cryptographic machines, and file transmission encryption acceleration systems.
The “Commercial Password Management Regulations” implemented in 2023 require more frequent and strict password evaluations. Relying on confidential products with core self-developed technology, the company is expected to start a second performance growth curve.
Risk warning: The estimated size of the military cybersecurity market is different from the actual situation; orders for space-borne products fall short of anticipated risks; and application expansion in airborne and other fields falls short of anticipated risks. Commercial cryptographic business development falls short of anticipated risks; company product quality or technical risks.