Incident: Convinced that the 2023 annual report was released, and the company achieved revenue of 7.662 billion yuan, up 3.36% year on year; realized net profit of 198 million yuan, up 1.89% year on year; realized net deducted non-net profit of 110 million yuan, up 9.97% year on year; realized net operating cash flow of 947 million yuan, up 26.97% year on year, of which cash received from selling goods and providing services was 8.730 billion yuan, up 7.40% year on year; by the end of 2023, the company's contract debt was 1,347 billion yuan, up 1.347 billion yuan year on year. 14.27% Looking at 2023Q4 alone, the company achieved revenue of 2,854 billion yuan, a year-on-year increase of 7.08%; realized net profit to mother of 743 million yuan, a year-on-year decrease of 16.55%; and realized deducted non-net profit of 712 million yuan.
The overall revenue side is under pressure, and the gross margin of core products has improved. In 2023, by product, the company's cybersecurity business achieved revenue of 3.892 billion yuan, a year-on-year decrease of 0.14%. The cybersecurity business failed to achieve growth, mainly due to unsatisfactory new orders for mature product lines such as network-wide behavioral management AC, mobile security, and application delivery AD. Although strategic businesses such as XDR and MSS maintained rapid growth, the revenue scale was still small, and the driving effect on the overall growth of the security business was not obvious. The cloud computing and IT infrastructure business achieved revenue of 3,090 billion yuan, an increase of 8.07% over the previous year. Among them, revenue from hyperconverged HCI products maintained steady growth and launched a new 6.9.0 version; the basic network and IoT business achieved revenue of 680 million yuan, an increase of 3.70% over the previous year. Among them, the growth rate of major wireless products increased, mainly reflected in key industries such as manufacturing, medical care, and higher education. In terms of gross margin, the company's overall gross margin was 65.13%, up 1.31 percentage points from the previous year, mainly due to the growth of the company's cloud computing business and the company's increased influence on upstream suppliers in the supply chain. The gross margins of the cybersecurity business/cloud computing/basic network and IoT business increased by 0.74/3.91/0.19 percentage points respectively over the same period in 2022.
Wait for downstream spending to improve, and overseas business to achieve high growth. In 2023, looking at the downstream customer industry, enterprise customers achieved revenue of 3.425 billion yuan, an increase of 19.73% year on year. Among them, customers in the energy, transportation and other industries maintained a high order growth rate; government and public sector customers achieved revenue of 3.429 billion yuan, a year-on-year decrease of 5.40%; and financial and other customers achieved revenue of 809 million yuan, a year-on-year decrease of 12.86%. In addition, the company achieved revenue of 346 million yuan overseas, an increase of 47.98% over the previous year, and the overseas market revenue scale continued to grow well. We believe that in 2023, in the face of macroeconomic fluctuations, downstream customers will remain cautious about cybersecurity expenses, putting pressure on the company's revenue side. If downstream customer spending improves in the future, the company's revenue is expected to return to a steady growth rate.
Continue to reduce costs and increase efficiency, and seize AI development opportunities. In 2023, the company continued to reduce costs and increase efficiency. In terms of three fees, the company's sales expenses, management expenses, and R&D expenses were 27.02/3.72/2,266 billion yuan respectively. The year-on-year changes were +12.07%/-4.69%/+0.82%, respectively. The overall growth rate of the three fees was 5.77%, and continued to be controlled within a reasonable range. In terms of R&D, the company has spent more than 20% on R&D for 8 consecutive years. In recent years, in order to embrace the AI wave, the company has continuously implemented AI technology and capabilities in various products, such as secure GPT, SAVE 3.0, NoDR, AIOps, etc., and has continuously promoted the upgrading of its product capabilities and service capabilities with innovative ideas and technical strength at the cutting edge. At the 2024 spring new product launch, the company released the upgraded version of Secure GPT 3.0, the AI computing power platform, and the EDS 520 storage version. We believe that while the company continues to operate in a refined manner, it still maintains a high level of investment in R&D, and the company's long-term product competitiveness is expected to continue to improve.
Profit forecast: We expect EPS to be 0.69/0.94/1.25 yuan in 2024-2026, and the corresponding PE will be 82.27/61.11/45.59 times.
Risk warning: Downstream spending improvements fall short of expectations, overseas market operating risks, and increased market competition.