Key points of investment

Incident: On March 12, 2024, GuoShield Quantum announced the “Plan for Issuing A Shares to Specific Targets in 2024". The company plans to issue 24,112,311 shares to Telecom Quantum Group in the specified target group at an issue price of 78.94 yuan/share. The total amount of capital to be raised will not exceed 1,903,425,830.34 yuan (including the number of shares), which will be used to supplement working capital after deducting the relevant issuance fees.

China Telecom plans to invest 1.9 billion yuan to hold Guodian Quantum and cooperate strongly to accelerate the industrialization of quantum communication. Quantum communication is of great significance in improving network security, protecting personal privacy, and promoting the development of next-generation communication technology. China attaches great importance to the development of quantum communication. The 2024 government work report clearly proposed “formulating future industrial development plans and opening up new tracks for quantum technology and life science.” This is yet another more forward-looking plan and layout following the proposed development strategy for emerging industries in 2009. On March 12, 2024, Guodian Quantum announced the “Plan for Issuing A Shares to Specific Targets in 2024”. China Telecom Quantum Group, a subsidiary of China Telecom, invested 1.9 billion yuan to take a stake in Guodian Quantum, holding 23.08% of the shares, and has 41.36% of the voting rights. After the issuance is completed, China Telecom Quantum Group will become the controlling shareholder of the company, and the State Council's State-owned Assets Administration Commission will become the actual controller of the company. As the “first stock of quantum technology”, Guodun Quantum is the earliest enterprise engaged in the industrialization of quantum information technology in China. It has advantages in key core technology research and transformation of scientific and technological achievements. After this release is completed, it will give full play to Guodun Quantum's core technical advantages and advantages in China Telecom application promotion and market expansion to help both parties achieve “1+1>2” leapfrog development.

Revenue and gross profit improved year-on-year, and losses increased due to high R&D investment and reduced subsidies. The company expects to achieve operating income of about 156 million yuan in 2023, an increase of about 15.79% year on year. Net profit to mother is estimated to be around -124 million yuan, which will increase losses by about 37.8 million yuan over the same period last year, and increase losses by about 43.85% year on year.

During the reporting period, the company's sales scale increased, product gross margin increased, and gross sales margin was expected to increase by about 23 million yuan over the previous year, but high R&D investment, untimely repayment, deferred taxes and reduced government subsidies had a big impact on profits. During the reporting period, the company's cost-based R&D investment is expected to increase by about 11 million yuan over the previous year; during the reporting period, impairment losses are expected to increase by about 17 million yuan over the previous year; during the reporting period, tax expenses are expected to increase by about 17 million yuan over the previous year; during the reporting period, the company's expenses are expected to increase by about 17 million yuan over the previous year; during the reporting period, the company's expenses are expected to increase by about 17 million yuan over the previous year; during the reporting period, the company's expenses are expected to increase by about 17 million yuan over the previous year; during the reporting period, the company's expenses are expected to increase by about 17 million yuan over the previous year; during the reporting period, the company's tax expenses are expected to increase by about 17 million yuan over the previous year; during the reporting period, the company's tax expenses are expected Included in the current period Various government subsidies for profit and loss are expected to be reduced by about 21 million yuan compared to the previous year.

China and the US are leading the way in quantum computing development, and the company's core quantum components have been localized. Currently, practical quantum communication is still mainly focused on information security issues. In the process of moving from 4G to 6G, higher requirements have been placed on information security. With the development of the digital economy, the risks brought about by the Internet of Everything will rise simultaneously with convenience. Quantum secure communication is a technology that can achieve information theory security. In terms of the development of quantum computing technology, at present, China and the US are basically “running side by side” and are in the first tier of the world. Currently, only the four quantum computers in the world have achieved the “quantum computing superiority” milestone, with cooperation between the US and Google, China's Zu Chongzhi, Jiuzhang, and the US and Canada. The US added the company to the list of entities in 2021. In order to solve the “stuck neck” problem, the company has always had a layout in terms of localization. Through self-research and cooperation with other organizations, National Shield Quantum's core components in the field of quantum communication and quantum computing have been localized, and a small number of general-purpose imported components also have localization alternatives.

The downstream applications of quantum communication are abundant, and the number of “quantum secrets” users has surpassed 1 million. The company has carried out extensive cooperation in the fields of mobile communications, electricity, finance, industrial Internet, big data, etc., and has joined hands with ecological partners to provide “quantum+” security services for various industries and fields. In terms of telecom calls, the strategic cooperation between the company and China Telecom Group continues to deepen. China Telecom Quantum, a joint venture between the two parties, was put into operation and launched the operator's first “quantum secret chat” commercial product. According to China Telecom statistics, the number of users has now exceeded 1 million; at the same time, quantum cryptographic intercom has been used in scenarios such as operation assurance, command and dispatch for the Hangzhou Asian Games. In Zhejiang and other places, the company and its participating company Zhejiang Guodun Electric Power have carried out “quantum+5G” public network security access application demonstrations in the power sector, covering business aspects such as transmission, transformation, distribution, regulation, and marketing, providing a low-cost, large-scale, and easy-to-implement quantum security implementation path for the construction of new power system information support systems. It will expand into more civilian fields in the future.

Investment advice: Guodian Quantum is the earliest domestic enterprise engaged in the industrialization of quantum information technology. It has advantages in key core technology research and transformation of scientific and technological achievements. We expect the company's revenue in 2023-2025 to be 1.57/1.88/230 million yuan, up 16.5%/19.7%/22.6% year on year, net profit to mother of -1.24/0.08/014 billion yuan respectively, up -43.9%/106.8%/60.3% year on year, corresponding EPS of -1.54/0.11/0.17 yuan. This is the first coverage, giving a “increase in holdings -B” proposal.

Risk warning: Technology research and development falls short of expectations; quantum communication business expansion falls short of expectations; loss of R&D personnel, etc.