Incident Overview

The company recently released its 2022 annual report and 2023 quarterly report. In 2022, it achieved operating income of 893 million yuan, a year-on-year decrease of 13.31%, and net profit of 150 million yuan, a year-on-year decrease of 51.57%. In the first quarter of 2023, the company achieved operating income of 231 million yuan, an increase of 8.14% over the previous year, and realized net profit of 33 million yuan, a year-on-year decrease of 28.12%. The company's performance growth slowed in 2022 due to the macroeconomic environment, and 23Q1 gradually picked up. We are optimistic about the company's performance recovery throughout the year. The company's expansion strategy against the trend will help seize future development opportunities.

Revenue and profits are under pressure in the short term. On the revenue side, the company achieved operating income of 893 million yuan in 2022, a year-on-year decrease of 13.31%, mainly due to the impact of the macroeconomic environment in 2022 on the company's project expansion, especially on project delivery and acceptance, which put pressure on revenue growth. In 23Q1, the company's revenue increased by 8.14%, showing some signs of recovery. Looking ahead to 2023, we believe that as the macroeconomic environment stabilizes, the company's various business progress has returned to normal, and in combination with earlier deferred delivery and acceptance projects to confirm revenue, we believe that the company is expected to achieve a revenue-side recovery in 2023.

On the profit side, the company's profit side in 2022 was under relative pressure. On the one hand, due to the macroeconomic environment affecting revenue growth, cost investment was relatively rigid. On the other hand, the company continued to push forward a contrarian expansion strategy and strengthened investment in market and R&D. In 2022, sales/management/R&D expenses increased 6.48%/13.91%/4.71% year on year. The company continued to strengthen its expansion efforts in operator, financial, government and other markets, and increased R&D investment in data security, cloud security, industrial control security, and innovative products. However, this strategic investment based on market and R&D has not yet been fully reflected in this year's benefits, leading to pressure on the company's short-term profit side. We believe that the company's strategy of bucking the trend and expanding will help seize opportunities in the context of macroeconomic recovery and help the company advance its medium- to long-term strategy and performance growth.

The business advantages of operators are obvious. The operator market, where application delivery, data security, and AI help grow the core of the company, is progressing steadily, and competitive advantages are gradually showing. According to the annual report, among operator users, the company's firewall, intrusion prevention, abnormal traffic cleaning, web application firewall, vulnerability scanning, application delivery platform and other products have been shortlisted in the centralized procurement lists of the three major operators for many years, and have ranked first in several standard categories many times. The company's products have been used on a large scale in the national networks of the three major operators, including core nodes such as metropolitan area networks, wireless Internet exports, and data centers, and have become the core supplier of network security products in the industry.

Application delivery products in the financial sector are implemented in batches. According to the company's official WeChat disclosure, in 2021, the company exclusively won the bid for the Agricultural Bank of China's 2021 Guoxin load balancing equipment project and China Life Insurance's Guoxin load balancing equipment project. At present, Dipp's load balancing products have been widely used by leading bank users such as Industrial and Commercial Bank, Agricultural Bank, Bank of China, Bank of Communications, China Merchants Bank, Guangfa Bank, Pudong Development Bank, Zhejiang Commercial Bank, and Industrial Bank, as well as insurance and securities users such as Pacific Insurance, Taiping Insurance, Bank of China Insurance, Fangzheng Securities, Haitong Securities, and Guotai Junan. The company relies on load balancing products in the financial industry and is expected to continue to benefit from the promotion of financial credit and innovation.

Data security solutions help the development of data elements. As data becomes a factor of production, data security governance has become a hot field of construction. Focusing on the security requirements of data elements in data processing, Dipu Technology has launched a data security operation solution that takes data protection as the core, achieves data security management compliance, enhances data security protection capabilities, and avoids data security risks, thus achieving “data security is visible, manageable, and controllable.” Through the data security management and control platform, detection (data classification and risk assessment system), monitoring (full data flow probe system), and protection (database firewall, database audit system, data leak prevention, data desensitization, data encryption, data watermarking, etc.) capabilities are unified and centralized, and management system construction is carried out to meet legal compliance requirements.

AI technology continues to empower. According to the annual report, the company continues to invest in artificial intelligence technology research and development. The products continue to be deeply cultivated in various technical fields such as APT attacks, automated vulnerability mining, abnormal behavior detection, cybersecurity situation prediction, API asset mapping, and intelligent identification and classification of data content, and are used in various products such as threat detection products, API risk monitoring products, and data security operation platforms, etc., to comprehensively improve the product's detection, investigation, response and self-evolution capabilities. In the third China Artificial Intelligence Competition co-hosted by the Internet Information Office, the Ministry of Industry and Information Technology, and the Ministry of Public Security, the Prophet Threat Perception Big Data Platform, with its excellent AI detection capabilities, successfully won the A-level certificate of only two companies in the country with the highest level of cybersecurity in the competition among many participating teams.

Investment advice:

Dipu Technology focuses on the field of cybersecurity and application delivery, and is a leading manufacturer in the domestic cybersecurity industry. Currently, the company focuses on high-value customers such as operators, finance, electricity and energy, and is gradually expanding to other customers such as government enterprises. Short-term corporate performance has been disrupted by the pandemic, but there are currently plenty of orders on hand, and it is expected that steady growth will continue to be achieved. We expect the company to achieve operating income of 1,146/14.04/1,725 billion yuan and net profit of 251/3.13/394 billion yuan in 2023/24/25. Maintain an investment rating of -A for increased holdings and give a six-month target price of 19.44 yuan, corresponding to a dynamic price-earnings ratio of 40 times in 2024.

Risk warning: Macroeconomic recovery falls short of expectations; policy progress falls short of expectations; supply chain supply is insufficient.