Incident: Anheng Information released the 2023 annual report and the 2024 first quarter results report. In 2023, the company achieved revenue of 2.170 billion yuan, an increase of 9.60%; realized net profit to mother of 360 million yuan, a year-on-year decrease of 41.90%; realized deducted non-net profit of 388 million yuan, a year-on-year decrease of 29.81%; and achieved net operating cash flow of -256 million yuan. By the end of 2023, the company's contract debt was 201 million yuan, which was basically the same as the previous year. In terms of expenses, the company's sales expenses, management expenses, and R&D expenses were 908/1.85/637 million yuan respectively. The year-on-year changes were +6.47%/-3.58%/-1.44%, respectively. The total cost ratio of the three fees decreased by 5.68%, and the results of cost reduction and efficiency were obvious. Looking at 2023Q4 alone, the company achieved revenue of 963 million yuan, a year-on-year increase of 2.38%; realized net profit of 176 million yuan, a year-on-year decrease of 13.60%; and realized deducted non-net profit of 168 million yuan. With 2024Q1, the company achieved revenue of 281 million yuan, a year-on-year change decrease of 16.47%; the company achieved net profit of 200 million yuan, an increase in losses over the previous year; deducted non-net profit - 204 million yuan, an increase in year-on-year losses.

The business performance of the new security strategy was outstanding, and customers in key industries maintained a good growth rate. In 2023, by product, the company's basic network information security products achieved revenue of 455 million yuan, a year-on-year decrease of 2.29%; the network information security platform achieved revenue of 779 million yuan, an increase of 1.31%; network information security services achieved revenue of 827 million yuan, an increase of 24.41% year on year; and third-party hardware products achieved revenue of 58 million yuan, an increase of 14.20% year on year. Looking at the company's new security strategy direction, (1) Data security: The company's data security-related product contract amount increased by nearly 40% year on year. The company has a complete data security product system that is rare in the industry, covering consulting and planning services, data security control of data centers, office network data security, private computing, etc., and is highly competitive.

(2) MSS: The company's MSS business revenue increased by more than 300% year-on-year, and the company launched the Tianqiu Artificial Intelligence Security Operation Platform for the MSS business. Through the Tianqiu Operation Platform, it can help customers handle security incidents more efficiently. The average daily alarm noise reduction ratio can reach 95%, and the alarm accuracy is over 97%. (3) Xinchuang Security: The company's Xinchuang Security product revenue increased by more than 100% year-on-year. Among them, products such as platform-based Xinchuang products, log auditing, and bastion machines grew rapidly. Looking at customers in different industries, the company's revenue from customers in key industries maintained a good growth rate. Among them, the revenue growth rate in the central state-owned enterprises/ medical/ operators/ Internet communications, transportation/ power industries was over 150%/30%/40%/20%.

A large-scale model in the vertical field of landing safety has empowered the company's many core products. In 2023, the company successfully launched An Heng Heng's Brain and Security Domain Model, which was put into use and achieved remarkable results during the two major international events of the Chengdu Universiade and Hangzhou Asian Games. Furthermore, the company empowered the Everbrain model to the company's various products, effectively enhancing product competitiveness. In the MSS business, the company actively incorporates AI capabilities into the MSS business. Based on the auxiliary support of the Everbrain model and the MSS security operation platform, the company effectively solved complex and repetitive tasks in the security operation process, improved security operation efficiency by more than 75%, advanced threat detection capabilities increased by more than 70%, and the closed loop rate of incident handling was also significantly improved. In terms of data security, based on the application support of the Everbrain Big Model in data classification and API security, the recognition rate of data classification classification is nearly 100%, the accuracy rate is increased by 3 times, and the efficiency of data classification and classification services is increased 30 times.

24Q1: Continue to implement refined operations and wait for revenue side improvements. With 2024Q1, the company achieved revenue of 281 million yuan, a year-on-year decrease of 16.47%. Mainly due to the impact of public health events, some of the company's orders and revenue were delayed at the end of 2022, resulting in a large revenue base in Q1 2023.

In terms of expenses, the company continues to operate in a refined manner. The total three fees for 2024Q1 decreased by 19.81%, and the results of cost reduction and fee control were remarkable. This decline was the biggest for the company in the past five years, and the company showed results in improving quality and efficiency.

Profit forecast: We believe that the recovery of downstream demand in the cybersecurity industry fell short of expectations in 2023, causing the company's revenue growth rate to fall short of expectations. Furthermore, since Q4 in '23, the company had a large personnel base and high rigid labor costs. Combined, the company invested heavily in supporting the Hangzhou Asian Games and Chengdu Universiade, which also affected the company's profit side. If downstream demand improves in the future and the results of compounding the company's cost reduction and efficiency are gradually reflected, the company is expected to return to a rapid growth trajectory. We expect EPS to be 0.22/1.16/2.24 yuan in 2024-2026, and the corresponding PE is 259.00/48.38/25.10 times.

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