Incident Overview
The company recently released its 2023 annual report and 2024 quarterly report forecast. In 2023, it achieved operating income of 549 million yuan, a year-on-year decrease of 16.54%, and realized net profit of 111 million yuan, a year-on-year decrease of 93.15%. In the first quarter of 2024, the company achieved operating income of 171 million yuan, an increase of 36.67% over the previous year, and realized net profit to mother of -30 million yuan, an increase of 8.61% over the previous year. The company's 2023 performance was pressured by the external environment, but the 2024Q1 performance recovered, and we expect performance improvements throughout the year.
Overall results in 2023 are under pressure. The revenue and profit side are expected to improve year-on-year in 2024. Looking at the revenue side, due to macroeconomic and other factors, the procurement pace of some customers has been delayed to varying degrees, and the company achieved 549 million yuan in operating revenue of 549 million yuan, a year-on-year decrease of 16.54%. Looking at specific industry divisions, the corporate finance industry achieved revenue of 258 million yuan, a year-on-year decrease of 41.99%; the enterprise industry achieved revenue of 137 million yuan, a year-on-year decrease of 0.98%; and the government industry achieved revenue of 153 million yuan, an increase of 106.21% over the previous year.
The short-term demand of the company's financial industry is under pressure. We think it is mainly because the financial industry is progressing ahead in the reform of national secrets. Therefore, in 2023, we will enter a stage where compliance requirements and business requirements are shifting, and corresponding demand has weakened. Looking ahead to 2024, along with the continuation of the financial industry's informatization capital expenditure and domestic credit innovation trends, we believe it is expected that passwords will be used for security protection in more business scenarios, and related demand is expected to recover.
The company's government and enterprise business have maintained relatively stable demand. In particular, the government business is growing rapidly. On the one hand, the company increased revenue from the government industry due to the company's introduction of Universal Technology in June 2023. On the other hand, the application field of commercial cryptography also expanded from important application fields such as finance, finance, tobacco, transportation, communications, and government affairs to new application fields such as medicine, education, and agriculture, bringing new business opportunities.
Looking ahead to 2024, judging from the Q1 results, the revenue side increased 36.67% year-on-year, laying a good foundation for business development throughout the year. We believe that with the steady recovery of the corporate finance industry, the continued expansion of the government and corporate markets, compounded by the combined influence of Universal Technology, 2024 is expected to usher in improved performance.
In terms of gross margin, the company's comprehensive gross profit margin in 2023 was 69.18%, down 2.33pct from 2022. Looking at industry segments, the financial industry's gross profit margin was 73.84% (yoy+1.60pct), corporate gross profit margin 68.79% (yoy-0.85pct), government business gross profit margin 61.52% (yoy -8.97%), corporate finance and corporate gross margin remained stable, while the decline in gross margin of government business was mainly due to the structural impact of the merger of Universal Technology. Overall, the company remained strong Product and market competitiveness.
On the cost side, in 2023, the company's sales/management/R&D expenses increased by 20.31%/11.78%/35.30%, respectively. We believe that the short-term cost increase is mainly due to the layout of future products and marketing. If demand and revenue recover, the cost ratio is expected to decline.
Actively lay out drone security and resist quantum cryptography to open up new markets in the low-altitude economy. According to the company's annual report and public account disclosure, drones are one of the key development directions of the national strategy and an important part of the low-altitude economy. Low-altitude shared drone systems face various security risks and encryption requirements. The company launched the “Low-altitude Drone Data Lifecycle Encryption Solution”. Currently, the solution has been selected as a “Typical Case in the Industrial Field” by the Ministry of Industry and Information Technology. By integrating secure cryptographic modules, deploying cryptographic gateway products, and using cryptographic resource services, the company comprehensively solves the security problems of important drone data throughout the life cycle.
In the field of anti-quantum cryptography, according to the annual report and public account disclosure, the company has actively promoted post-quantum cryptographic algorithm research, migration and industry implementation work, and has successfully integrated some post-quantum algorithms into the company's products to provide security guarantees in the face of future post-quantum cryptography risks; comprehensive post-design quantum cryptography migration planning and implementation practices to help various industries smoothly transition from traditional cryptographic systems to post-quantum cryptography systems; and has established alliances with many innovative institutions to jointly carry out research on post-quantum cryptography experimental topics.
Investment advice:
As a leading provider of information security products and solutions in China, Xin'an Century is supported by cryptographic technology, expanding horizontally from finance to the government and enterprise industry, and extending vertically from cryptography to other cybersecurity products, and actively laying out cutting-edge low-altitude and quantum technology directions. We expect the company to achieve operating income of 7.51/9.13/1,106 billion yuan in 2024/25/26 and net profit to mother of 0.92/1.30/167 million yuan. The investment rating of Buy-A is maintained, and a 6-month target price of 21.40 yuan is given, corresponding to a dynamic price-earnings ratio of 50 times in 2024.
Risk warning: downstream customer demand falls short of expectations; technology development falls short of expectations.