Incident: Kai Mingchen released the 2023 report and the performance forecast for the first quarter of 2024. In 2023, the company achieved revenue of 4.507 billion yuan, up 1.58% year on year; realized net profit of 741 million yuan, up 18.37% year on year; realized net deducted non-net profit of 471 million yuan, down 9.60% year on year; achieved net operating cash flow of -393 million yuan, a sharp year-on-year decrease. The decline in net operating cash flow was mainly due to slow repayments and an increase in the company's cash expenditure for integrated projects. By the end of 2023, the company's contract debt was 251 million yuan, an increase of 31.99% over the previous year. Looking at 2023Q4 alone, the company achieved revenue of 1,973 billion yuan, a year-on-year decrease of 13.01%; realized net profit of 500 million yuan, a year-on-year decrease of 42.93%; realized deducted non-net profit of 470 million yuan, a year-on-year decrease of 42.48%.

With 2024Q1, the company is expected to achieve revenue of 90 billion yuan to 950 million yuan, an increase of 14.26% to 20.61%; net profit to mother of -133 million yuan to -93 million yuan, and losses increased year-on-year. The increase in net profit loss was mainly due to large fluctuations in the stock prices of listed companies invested by the company in 24Q1, and the 24Q1 company's investment income and fair value change income decreased by 119 million yuan year on year. Non-net profit deducted from -0.58 billion yuan to -0.38 billion yuan, an increase of 41.82% to 61.88% year-on-year.

The new business segment maintained a high growth rate, and new technology accelerated commercialization. In 2023, by product, the company's safety products achieved revenue of 2,578 billion yuan, a year-on-year decrease of 12.81%; security operations and services achieved revenue of 1,899 billion yuan, an increase of 30.63% year-on-year; and other businesses achieved revenue of 0.3 billion yuan, an increase of 13.32% year-on-year. In terms of new business segments (cloud security, data security 2.0 & 3.0, industrial internet security, secure operation), the company's new business segment achieved overall revenue of 2.142 billion yuan, an increase of 13.82% over the same period last year, accounting for 47.54% of annual revenue, and the share of new business revenue increased further. Among them, the cloud-related security business achieved revenue of 572 million, an increase of 34.50% over the same period of the previous year, and the security operation center business achieved revenue of 1,061 million yuan, an increase of 13.01% over the same period last year. In addition, the company continues to accelerate the implementation of new products and technologies. Among them, the revenue growth rate of identity trust products and 5G+ industrial Internet security detection products all exceeded 200%; data security management platforms, network security shooting ranges, full traffic detection, Xinchuang firewalls, and EDR (terminal threat detection and response) all achieved a growth rate of more than 50%.

The results of improving quality and efficiency were remarkable, and China Mobile officially became the actual controller of the company. In 2023, the company continued to reduce costs and increase efficiency. In terms of expenses, the company's sales expenses, management expenses, and R&D expenses were 10.32/1.93/815 million yuan respectively. The year-on-year changes were -11.18%/-7.65%/-13.23%, respectively. The overall three fees decreased by 11.69% year on year, and the cost ratio (three fees) decreased by 6.8 percentage points. In terms of human efficiency, the company generated 693,300 yuan in revenue per capita, an increase of 7.83% over the previous year. In terms of collaboration with China Mobile, China Mobile Group officially became the actual controller of the company on January 5, 2024. The company actively promoted high-quality business collaboration and implementation with China Mobile, achieved comprehensive headquarters-province-city interface, and signed 62 strategic cooperation agreements with China Mobile Group and its subsidiaries.

24Q1: Revenue continued to grow well, and repayments improved markedly. With 2024Q1, the company expects to achieve revenue of 90 billion yuan to 950 million yuan, an increase of 14.26% to 20.61% year on year; deduct non-net profit of -58 million yuan to -0.38 billion yuan, an increase of 41.82% to 61.88% year on year. At the same time, per capita income generation increased markedly, gross profit increased at the same rate, and the quality and efficiency of the main business improved markedly. Furthermore, in terms of repayments, the company continued to strengthen accounts receivable and repayment management in 2024Q1, with repayments increasing by more than 60% over the same period last year. We believe that the revenue side of 2024Q1 continued the good growth rate in 2023, while at the same time making significant improvements in terms of repayments. As the company continues to improve quality and efficiency, and the further deepening of collaboration between superposition and migration, the company's future performance is expected to continue its good growth trend.

Profit forecast: We expect EPS to be 0.77/0.94/1.19 yuan in 2024-2026, and the corresponding PE will be 24.84/20.25/16.11 times.

Risk warning: Downstream spending improvements fall short of expectations, new technology development falls short of expectations, and market competition intensifies.