Incident: The company released its 2023 annual report and achieved annual revenue of 561 million yuan (-14.89%), net profit of 37 million yuan (+524.28%), and deducted non-net profit of -12 million (+78.36%). In addition, the company also released its 2024 Q1 quarterly report. In Q24, it achieved revenue of 49 million yuan (-29.24%), net profit to mother of -52 million yuan (-23.65%), and deducted non-net profit of -56 million yuan (-7.02%).

Revenue from PKI security application products grew rapidly, and overall gross margin was optimized. The company's overall gross margin in '23 was 47.48%, up 7.62 pcts year on year. By business, PKI security application product revenue was 224 million (YoY +33.04%), gross profit margin 66.26% (YoY -3.2pct), PKI infrastructure product revenue of 111 million yuan (-6.64% YoY), gross profit margin 50.92% (+4.21pct year over year), general security product revenue of 225 million yuan (YoY +2.86pct), gross profit margin 27.08% (YoY +2.86pct).

Expense rates are still rising as a result of the revenue base. On the cost side, the company's expense ratio for the 23-year period was 49.55%, up 3.7 pcts year-on-year, mainly due to a smaller revenue base due to a decline in revenue. Among them, the management expense ratio was 20.22% (-2.09pct year on year), and the sales expense ratio and R&D expense ratio were 14.85% and 15.16% respectively, up 5.12 pct and 1.30 pct, respectively.

Actively lay out new technologies and new scenarios. The company attaches importance to technological innovation, is committed to providing leading data governance and privacy protection services, as well as comprehensive data security solutions, and continues to invest in research and development in the field of quantum security and private computing. At the same time, in response to the rapid development of the Internet of Things, the company continues to launch security solutions that are deeply integrated into application scenarios, covering cutting-edge fields such as low-altitude economy, satellite communications, video surveillance, and vehicle networking.

According to the 2023 annual report and 24Q1 quarterly report, the revenue growth rate was lowered, and the gross profit margin was slightly adjusted. We predicted that the company's 2024-2026 EPS would be 0.30/0.36/0.41 yuan respectively (the original 24-25 EPS was 0.55/0.69 yuan). Based on the comparable company's PE level, we gave the company 49 times PE in 24 years, and the corresponding target price was 14.70 yuan, maintaining the purchase rating.

Risk warning

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