The company predicts that net profit due to mother in 2023 will turn a year-on-year loss to a profit of 100-120 million yuan, and Sino-Syck released the 2023 performance forecast: net profit for the whole year is expected to turn a year-on-year loss to profit of 100-120 million yuan (loss of 120 million yuan in the same period last year); after deducting non-net profit, it will turn a year-on-year profit of 0.7-90 million yuan (loss of 140 million yuan in the same period last year). In the fourth quarter of a year alone, the company expected net profit to return to profit of 0.26 to 046 million yuan (loss of 0.2 billion yuan in the same period of the previous year); net profit after deducting non-net profit to turn a year-on-year loss to a profit of 0.23-0.43 billion yuan (loss of 0.3 billion yuan for the same period last year), which is basically in line with market expectations.

Key points of interest

Gross margin increased year over year, and net profit turned loss year over year into profit. The company expects net profit to turn a loss into a profit year on year in 2023, mainly due to: 1) revenue side: the company actively follows industry policies, seizes opportunities for industry demand recovery, and comprehensively promotes project signing and execution in domestic and foreign markets, and successfully accepts and confirms revenue, driving revenue growth year-on-year; 2) gross margin side: with continuous optimization and upgrading of the company's product performance and structure, the share of software revenue (including embedded software) will increase year-on-year; 3) The company confirmed a year-on-year increase in comprehensive gross margin in 2023; 3) The company confirmed government subsidy revenue of about 29 million yuan (non-recurring profit and loss), excluding post-deductions Non-net profit still turned a loss into a profit year over year. We believe that the profit side turned losses into profits year over year, highlighting the company's remarkable results in optimizing the data security management platform and building a data security product and service system.

The leading position was further consolidated. In the first three quarters, the company actively promoted the implementation of domestic and overseas projects. Some projects were successfully accepted, and revenue growth was impressive. Product dimensions, first three quarters 1) Broadband network products: benefiting from Mano, a supporting visual operation and maintenance product, achieving commercial use; 2) Mobile network products: benefiting from the increase in market share of 2/3/4/5G multi-standard products and rapid revenue growth of electromagnetic space detection products; 3) Internet content security products: benefiting from the steady recovery of overseas business and breaking through many gaps in overseas markets. At the customer level, government and enterprise affairs continued to break through in the first three quarters. The new product network insight matrix and security accelerator achieved cumulative revenue of 10 million yuan; OceanMind developed new customers in the manufacturing/audit/transportation/petrochemical industry, etc., and achieved new orders. We believe that as products and customers continue to break through, the annual results are expected to continue the impressive growth of the first three quarters and further consolidate our leading position.

Profit forecasting and valuation

Maintain an outperforming industry rating. Considering that revenue recognition for some projects is still uncertain, 2023/24 revenue was reduced by 11.6%/10.8% to $71/92 billion; considering fluctuations in company expenses and other profit and loss items, net profit attributable to mother was lowered by 29.8%/35.7% to $1.1/150 million yuan in 2023/24. Introduced 2025 revenue of 1.16 billion yuan and net profit of 220 million yuan. Considering fluctuations in the macro environment, the target price was lowered by 21% to 35 yuan (switching valuation to 2024, based on 41x 2024e P/E). The current stock price corresponds to 29/20x 2024/25e P/E, with 42% upside.

risks

Downstream customer demand falls short of expectations, overseas business expansion falls short of expectations, and new business expansion falls short of expectations.