Net profit to the mother of 2023 turned a year-on-year loss to a profit of 110 million yuan, in line with market expectations. In line with market expectations, Sino-Syke announced 2023 results: revenue of 650 million yuan, an increase of 49.9% year on year; net profit to mother of 110 million yuan, which changed from loss to profit year over year. Revenue for the fourth quarter was 190 million yuan, up 11.1% year on year; net profit attributable to mother was 40 million yuan, which changed from loss to profit year over year, in line with market expectations.

Development trends

Downstream demand is gradually being released, and revenue is growing rapidly. 1) At the product level, broadband network/mobile network revenue for 23 front-end products increased 106.3%/43.0% year-on-year to 350 million yuan/130 million yuan respectively; back-end products, network content security/big data operation products, increased 27.7%/17.5% year-on-year to 6291/9.7 million yuan respectively, and network and data security products increased 55.1% year-on-year to 14.87 million yuan. 2) In terms of downstream customers, the government/operator industry increased by 3.8%/123.4% year on year to 26/30 million yuan respectively in '23. 3) Overseas revenue increased 45.4% year over year to 91.29 million yuan. According to the company's disclosure, the revenue recovery in 23 years was mainly due to the gradual release of investment and construction needs of the government, operators, enterprises and institutions in the fields of infrastructure construction and network data security. The company actively followed industry policies and promoted the signing and execution of domestic and foreign market projects. Some contracts were successfully tested and revenue confirmed during the reporting period. We believe that as the boom in the online visualization industry picks up, some related bid winning or signing projects for major domestic industry customers continue to be implemented, and the company's performance is expected to further improve.

Gross margin has increased significantly, and cost reduction and efficiency have been very effective. The company's gross margin increased 11.4ppt to 77.6% year on year. Among them, the gross margin of broadband network products increased by 3.7ppt to 89.2% year on year, gross margin of mobile network products increased by 1.1 ppt to 63.0% year on year; gross margin of the government industry increased 11.8ppt to 65.1% year on year, and the gross profit margin of the operator industry was 90.3%, basically the same as the previous year. At the cost level, the total three-year fee (sales, management and R&D) decreased 2.0% year over year. Among them, R&D expenses decreased 11.7% year over year, and sales/management expenses increased 10.2%/1.1% year over year.

Expanding from data collection to data application fields. During the reporting period, the company expanded the coverage of product categories and segments in the field of data applications and security services, big data operation products, network content security products, and data and network security products, further expanding the breadth and depth of the market. The company continues to carry out iterative optimization of mobile network air port signal acquisition and analysis products to better meet the needs of multi-standard scenarios in domestic and international markets. In addition, the company has also launched an operator network quality monitoring system, which has strongly improved the application effectiveness and customer satisfaction of the comprehensive platform.

Profit forecasting and valuation

Maintain outperforming industry ratings. Considering the uncertain revenue of some projects, the 2024/25 revenue was reduced by 12.8%/20.4% to 80/92 billion yuan, and 2024/25 net profit was reduced by 11.4%/14.9% to the mother's net profit by 11.4%/14.9% to $13/180 million yuan. Maintaining a target price of 35 yuan (based on 46x 2024e P/E), the current stock price corresponds to 38/27x 2024/25e P/E, with 21% upside.

risks

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