Market demand was sluggish in '23, putting pressure on the company as a whole. The company released the 2023 annual report and the 2024 quarterly report, achieving full year revenue of 359 million yuan (+5.54%), net profit to mother of 67 million yuan (-37.26%), and net profit of 58 million yuan (-41.36%) after deducting non-return to mother net profit. Looking at Q4 alone, the company's revenue was 122 million yuan (-27.05%), net profit attributable to mother was 0.28 million yuan (-64.38%), and net profit not attributable to mother was 0.26 million yuan (-65.87%). Looking at 24Q1, the company achieved revenue of 49 million yuan (+36.35%), net profit attributable to mother of 0.1 billion yuan (-163.42%), and net profit not attributable to mother of -13 million yuan (-171.92%). The company has achieved remarkable results in pioneering fields such as cloud service providers and operators. At the same time, Jiangnan Keyou has enhanced the company's performance in 23 years.
Expenses for the acquisition of Jiangnan Keyou have increased, and synergy improvements can be expected. From the company's acquisition of Jiangnan Keyou until the end of '23, Jiangnan Keyou had revenue of about RMB 86 million and net profit of RMB 29 million. While increasing performance, it also led to a high increase in the company's expenses. The company's sales, management, and R&D expenses increased by 70.94%, 47.80%, and 44.20% year-on-year. After the acquisition of Jiangnan Keyou, the company further expanded the financial cryptographic market. After deep integration in the future, the two sides will share channels and customer resources, and synergy improvements can be expected, and the cost rate is expected to return to normal levels.
End customer revenue is growing faster. By industry, the company's final customer revenue was 104 million yuan (+67.60%), and gross margin also increased by 5.42 percentage points. Product and solution revenue was 253 million yuan (-7.91%), and gross margin also decreased by 6.10 percentage points. By product, cryptographic card revenue was 58 million yuan (+21.05%), total cryptographic machine revenue was 130 million yuan (+1.56%), cryptographic system revenue was 107 million yuan (-24.78%), and cryptographic service revenue was 49 million yuan (+273.32%). The decline in cryptographic systems is mainly due to a reduction in sales in the securities industry; high growth in cryptographic services is mainly due to an increase in the share of end customers, and end users have higher requirements for support and technical services.
The increase in the number of secret review agencies is a positive sign for the industry, and the company can be expected to expand its new business. In March 2024, the State Secret Service announced more than 150 secret review agencies that have passed the material review. The number of secret review agencies was only 48. The sharp increase in secret review agencies will further boost the coverage of the confidential review market, thus driving the recovery of the confidential product market. At the same time, the company is actively exploring new fields, deploying the earliest cloud computing cryptographic products in China, and cooperating with many domestic cloud platform vendors and telecom operators to innovate cloud cryptographic service models. The company also released a new product, the “Quantum Anti-Quantum Privacy Computing All-in-One”, which fills the gaps in the company's products in the direction of anti-quantum cryptographic algorithms and private computing.
Risk warning: Secret reviews, credit, etc. are being promoted slowly; industry competition is intensifying; IT budget spending falls short of expectations.
Investment advice: Maintain a “buy” rating. Due to the impact of the domestic economic recovery pace, we have lowered our profits.
The estimated net profit for 2024-2026 is 1.04 billion 142/183 million yuan (the original forecast was 2.01/267 million yuan for 24-25), corresponding to current PE 31/26/20 times, respectively. Considering the gradual recovery of the industry, mergers and acquisitions and new business expansions have boosted performance and maintained a “buy” rating.