Incident: The company released its 2023 annual report and achieved annual revenue of 7.662 million yuan (+3.36%), net profit to mother of 198 million (+1.89%), deducting non-net profit of 110 million (+9.97%), of which Q4 achieved revenue of 2,854 million yuan (+7.08%), net profit to mother of 743 million (-16.55%), and deducted non-net profit of 712 million (-20.93%). The company released its 2024 Q1 quarterly report, achieving revenue of 1,035 million yuan (-14.66%), net profit to mother of 489 million (-18.64%), and deducted non-net profit of 510 million yuan (-19.65%).

All businesses remained stable throughout the year, and overseas revenue grew rapidly. By business, revenue from the network security business, cloud computing and IT infrastructure business, basic network and IoT business reached 3.892 billion, 3,090 billion, and 680 million respectively, with year-on-year growth rates of -0.14%, +8.07%, and +3.70%, respectively. By industry, the revenue of the two major industries of government, public institutions, and enterprises was 3.429 billion and 3.425 billion, with growth rates of -5.40% and +19.73% respectively, accounting for 44.75% and 44.69% of revenue. Financial and other industries had revenue of 809 million (-12.86%), accounting for 10.55% of revenue. Overseas market revenue increased by 47.98% to $346 million.

The gross margin increased steadily, and the cost ratio remained stable. In 2023, the company's gross margin was 65.13%, up 1.31pct year on year. Among them, the gross margins of network security business, cloud computing and IT infrastructure business, basic network and IoT business were 81.24%, 47.47%, and 53.24%, respectively, up 0.74 pct, 3.91 pct, and 0.19 pct year on year, respectively. During the reporting period, the company's expense ratio was 66.93%, up 2.21pct year on year. Among them, the sales expense ratio was 35.26%, up 2.74 pct year on year, and the management expense ratio and R&D expense ratio were 4.85% and 29.58% respectively, down 0.41 pct and 0.74 pct year on year.

Promote the “AI First” innovative research strategy and continue to strengthen its leading position in the cloud computing and cybersecurity markets.

Convinced has launched a number of innovative AI security products in 2023, including secure GPT 3.0, SAVE 3.0, NoDr, and AIOps, as well as AI computing power platforms and EDS 520 storage products. Furthermore, by integrating AI technology, the hyperconverged HCI 6.9.0 version greatly enhances the ability to predict and locate system faults, while maintaining the consistency of product function and quality in Xinchuang and non-Xinchuang models, improving resource efficiency and performance. The 501 high-performance version released by Storage EDS also provides excellent storage and performance support for high-end applications such as AI training and chip design through self-developed technology.

Adjusting the revenue growth rate, gross margin, and expense ratio, we forecast the company's 24-26 revenue of 83.03 billion yuan, 91.93 billion yuan, and 10.340 billion yuan, respectively (the original 24-25 forecast was 110.57 billion yuan and 13.296 billion yuan, respectively). Based on the comparable company's 24-year PS level, the company was given 3.11 times PS in 24 years, corresponding to a reasonable stock price of 61.54 yuan, maintaining the purchase rating.

Risk warning

Demand for cybersecurity fell short of expectations; competition in the cybersecurity market intensified.