The company's revenue has been growing steadily in 23 years, product revenue from the new strategic direction has remained high, the industry's strategic results have been outstanding, and the fee control effect is remarkable. With the support of “Everbrain”, the AI model will empower traditional security businesses.

Incident: The company released the 2023 annual report and the report for the first quarter of 2024. The company achieved operating income of 2.17 billion yuan, YoY +9.60%; net profit to mother - 360 million yuan, an increase in losses over the previous year; net profit after deducting non-return to mother - 388 million yuan, an increase in year-on-year losses; and achieved net operating cash flow of -256 million yuan, compared to -179 million yuan in the same period last year. 23Q4 achieved revenue of 963 million yuan in a single quarter, YoY +2.38%; net profit to mother of 176 million yuan, YoY -13.65%; net profit after deducting non-attributable net profit of 168 million yuan, YoY -6.66%.

The 24Q1 quarter achieved operating income of 281 million yuan, YoY -16.47%; realized net profit to mother of 200 million yuan, an increase in losses over the previous year; realized net profit after deduction of non-return to mother - 204 million yuan, an increase in losses over the previous year.

Fee control has been effective, and product revenue from the new strategic direction has maintained a high increase. In 2023, the company's overall revenue achieved steady growth against the backdrop of delayed business opportunities for downstream customers and increasingly fierce market competition. In terms of products, the company's revenue from new strategic directions such as MSS, Xinchuang Security, and Password Security continued to grow rapidly, and security services continued to grow rapidly; in terms of industry, the revenue growth rate of the company's central state-owned enterprises/medical industry exceeded 150%/30% year-on-year, respectively. The industry revenue growth rate significantly exceeded the company's overall revenue growth rate. Among them, the operators/network information/transportation/power industries Revenue increased by more than 30%/40%/40%/20%, respectively, and the revenue of the telecom sector among operators increased by more than 70% year on year. In terms of cost control, the company actively implemented cost reduction and efficiency measures by improving and optimizing enterprise management, supply chain management, budget management, and resource allocation. The total three-fee rate decreased by 5.68 pcts in '23 and 19.81 pcts in total in 24Q1. The cost control effect was remarkable.

Successfully launched the “Persistent Brain” model to lead the core strategy with AI. In '23, the company successfully launched An Heng Heng Brain and Security Domain Model and put it into use at the Hangzhou Asian Games. It became the world's first major security model to be applied at major international events. The company will use Hengbrain to empower core strategies such as data security and MSS. In terms of data security, the contract amount for related products increased by nearly 40% over the previous year. Data security products were deeply integrated with constant brain capabilities, and the recognition rate of classification classification was raised to 100% and the accuracy rate was raised to 80% through the deep combination of classification grading tools and the Everbrain model, thereby greatly reducing the dependence of classification work on manpower; the deep combination of API security products and the Everbrain model increased the efficiency of API security operations by 90%. In terms of MSS business, the company's MSS revenue increased by more than 300% year-on-year in '23, mainly due to the company's active integration of AI capabilities into the MSS business to create an intelligent and secure operation system.

Maintain a “Highly Recommended” investment rating. The company's net profit for 24-26 is estimated to be RMB 0.22/0.99/178 million yuan, maintaining the “Highly Recommended” rating.

Risk warning: Policy implementation falls short of expectations, industry competition intensifies, and costs rise