Turned a loss into a profit in '23, and the 24-year results are expected to recover and maintain “buying”

Ger Software released its annual report. In 2023, it achieved revenue of 561 million yuan (yoy -14.89%), net profit of 369.657 million yuan (-8.7125 million yuan in '22), and deducting non-net profit of 117.606 million yuan (-54.343 million yuan in '22). Among them, Q4 achieved revenue of 230 million yuan (yoy +18.64%) and net profit of 74.3737 million yuan (yoy +77.43%) to mother. The company's net profit from the mother turned a loss into a profit in '23, mainly benefiting from gross margin optimization. Considering the recovery of the Xinchuang industry, the company's revenue is expected to recover in 24. The company's EPS for 24-26 is expected to be 0.31, 0.41, and 0.62 yuan, respectively (previous values were 0.32 and 0.40 yuan in 24-25). Comparatively, the company's unanimous expectation (Wind) average value is 24E 32xPE. Considering the company's advantageous layout in the emerging safety field, the company was given 24E 55xPE with a target price of 17.05 yuan (previous value 17.60 yuan) to maintain the “purchase”.

The gross margin increased by 7.62 pct year on year, and the overall gross margin of the New Technology Direction Company in 23 was 47.48%, up 7.62 pct year on year. Benefiting from changes in business structure share, profitability increased significantly in 23 years. By business, PKI security application product revenue was 224 million yuan, +33.04% year over year, gross profit margin 66.26% year on year, -3.2 pct year; PKI infrastructure product revenue was 111 million yuan, -6.64% year on year, gross profit margin 50.92% year on year, +4.21pct year on year; general security product revenue was 225 million yuan, -9.30% year on year, gross profit margin 27.08%, and +2.86pct year on year. The company's 23-year sales/management/R&D expense rates were 14.85%/20.22%/15.16%, respectively, +5.12pct/-2.09pct/+1.30pct. The company attaches great importance to research and development of new technologies, and lays out new security tracks such as anti-quantum cryptography, data security, and cloud cryptography platforms. In 2023, 9 new authorized patents and 9 software copyrights were added.

Strengthen marketing team building and focus on industry innovation opportunities

The company organically combines authentication and cryptographic technology to create a full-stack data security solution and digital security platform product matrix, promote traditional cryptographic technology to the cloud, and successfully expand cryptographic application scenarios in various industries such as operators, insurance, education, and medical care in 23 years. With the gradual release of demand for innovation in the industry, the company actively strengthened marketing team building and accelerated market development. In '23, the company set up 10 major industry departments for the party and government, defense, operators, finance, energy, medical care, education and other industries, and built a sound marketing network service system to achieve comprehensive coverage of the industry and region. We believe that with the launch of the “annual review system” for secret reviews, downstream demand is expected to gradually recover, and the company's core business may pick up at the same time in 24 years.

24Q1 performance is under pressure, and full-year results are expected to gradually recover

Ger Software released its quarterly report. In Q1 of 2024, it achieved revenue of 549 million yuan (yoy -29.24%), net profit to mother of -51.501 million yuan (41.6518 million yuan in 23Q1), and deducted non-net profit of 557.407 million yuan (-22.0826 million yuan in 23Q1). The overall gross margin for 24Q1 was 35.79%, -10.57pct year over year, mainly affected by the increase in the share of government side business. The 24Q1 sales/management/R&D expense ratio was 35.78%/73.46%/47.87%, -0.91pct/+3.43pct/+24.63pct year-on-year. Looking at the full-year perspective, the industry's demand for innovation, data security, etc. has begun to recover, and the company's performance is expected to gradually be released, and growth is expected throughout the year.

Risk warning: Information security policies fall short of expectations, and the pace of security business promotion falls short of expectations.