Core views
In 2023, the company continued to implement a contrarian expansion strategy, continue to strengthen the expansion of operators, finance, government and other markets, and increase R&D investment in data security, cloud security, industrial control security, and Xinchuang products. The company operator market experienced rapid growth in 2023. Since 2024, as telecom operators step up the construction of intelligent computing centers, the company can provide a full set of security solutions for intelligent computing centers. Based on previous good cooperation with telecom operators in cloud security resource pools, the company's operator business is expected to maintain high growth. Furthermore, with strong product strength and continuous improvement of channel capabilities, the company continues to break through financial, energy and other customers.
occurrences
Recently, the company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 1,034 billion yuan, an increase of 15.77% over the previous year, and realized net profit of 127 million yuan, a year-on-year decrease of 15.44%. In the first quarter of 2024, the company achieved operating income of 255 million yuan, an increase of 10.16% over the previous year; net profit to mother was 36.686 million yuan, an increase of 12.37% over the previous year.
Brief review
1. Adhere to the contrarian expansion strategy and strengthen market and R&D investment.
In 2023, the company achieved operating income of 1,034 billion yuan, an increase of 15.77% over the previous year, and realized net profit of 127 million yuan, a year-on-year decrease of 15.44%. The company's revenue growth rate is faster than profit growth. The main reason is that the company adhered to a contrarian expansion strategy and strengthened market and R&D investment. In 2023, the company's sales expenses were 403 million yuan, up 32.93% year on year, sales expenses were 38.99%, up 5.03 pct year on year, mainly due to the increase in sales staff; R&D expenses were 255 million yuan, up 4.40% year on year, and R&D expenses rate was 24.30%, down 2.64 pct year on year.
Looking at a single quarter, 2023Q4 achieved revenue of 314 million yuan, an increase of 9.46% year on year; realized net profit to mother of 59.56 million yuan, a year-on-year decrease of 27.01%. 2024Q1 achieved operating income of 255 million yuan, an increase of 10.16% year on year; net profit to mother of 36.69 million yuan, an increase of 12.37% year on year. The company's revenue growth rate is gradually recovering.
2. The operator market revenue is growing rapidly, and it has ranked first in multiple bids many times.
In 2023, the company's operator market revenue reached 273 million yuan, a year-on-year increase of 29.84%, and gross margin increased 4.77pct. The operator market has become the company's basic business and is highly competitive. The company's products such as firewalls, intrusion prevention, abnormal traffic cleaning, web application firewalls, vulnerability scanning, and application delivery platforms have been on the centralized procurement lists of the three major operators for many years, and have ranked first in multiple categories many times. In China Mobile's centralized procurement of hardware firewall products from 2023 to 2024, the company ranked the third-/first winning candidate in bid package 1 and standard package 2, respectively. The company achieved a breakthrough in the operator's core network business in 2023 and participated in the construction of core network projects in many places. Furthermore, since 2024, telecom operators have increased the construction of intelligent computing centers, and the company can provide a full set of security solutions for intelligent computing centers. Based on previous good cooperation with telecom operators in cloud security resource pools, the company's operator business is expected to maintain high growth.
3. Outstanding technical capabilities for application delivery (load balancing) products, continuing to break through financial, energy and other customers.
In China Mobile's centralized procurement of load balancer products from 2022 to 2023, the company won the bid for the high-end package with the first share, marking that the company broke F5's monopoly in the high-end load balancing market. In addition, the company continues to break through financial and energy customers. The company's load balancing products are continuously shortlisted for collection by the State Grid and China Southern Power Grid. Related products are widely used in the National Grid headquarters and provincial branches, and the company has become one of the main suppliers of cyber security and application delivery products in the power and energy industry. Among users in financial and other industries, the company's load balancing products are widely used in Bank of Communications, Industrial and Commercial Bank of China, Bank of China, Agricultural Bank, China Life Insurance, etc.; security products such as corporate firewalls are also widely used in data centers such as Bank of China and Hang Fung Bank.
4. Profit prediction and investment advice.
The company's network security products include a full range of high- and low-end products, covering various application scenarios. High-end firewall and load balancing products are highly competitive. In 2023, the company will continue to implement a contrarian expansion strategy, continue to strengthen the expansion of operators, finance, government and other markets, and increase R&D investment in data security, cloud security, industrial control security, and innovation products. The company operator market experienced rapid growth in 2023. Since 2024, telecom operators have stepped up their efforts to build intelligent computing centers. The company can provide a full set of security solutions for intelligent computing centers. Based on previous good cooperation with telecom operators in cloud security resource pools, the company's operator business is expected to maintain high growth. Furthermore, with strong product strength and continuous improvement of channel capabilities, the company continues to break through financial, energy and other customers. We expect the company's net profit to be 155 million yuan, 119 million yuan, and 255 million yuan respectively in 2024-2026, corresponding to PE 46X, 35X, and 27X, maintaining a “buy” rating.
5. Risk warning.
Government security expenses fell short of expectations, and some cyber security projects were underfunded and could not be implemented as planned; some regional governments are under high financial pressure and have a long repayment cycle, putting some pressure on the company's cash flow. Enterprise IT security spending falls short of expectations; there are many participants in the cybersecurity industry, and the homogenization of some products is severe, so competition is fierce, or the gross profit margin is affected, especially for low-end products; the company expanded emerging businesses such as security testing and security services, and personnel expanded rapidly in the short term, leading to an increase in costs, and profits cannot be reflected in the current period, affecting profits; changes in the competitive landscape of the industry, such as the industry being invested in or controlled by central enterprises, affecting the company's business development; the US restricted upgrading and chip procurement.
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