occurrences

The company released the 2024 semi-annual report, with operating income of 0.502 billion yuan, up 13.63% year on year; net profit to mother was 0.052 billion yuan, up 32.09% year on year; net profit after deducting back to mother was 0.046 billion yuan, up 32.34% year on year.

Single Q2: Operating income was 0.248 billion yuan, up 17.42% year on year; net profit to mother was 0.015 billion yuan, up 127.23% year on year; net profit after deduction was 0.013 billion yuan, up 266.38% year on year.

reviews

The government's performance was outstanding, thanks to a contrarian expansion strategy

By industry:

Government revenue was 0.161 billion yuan, up 13.54% year over year, achieving contrarian growth. We believe the main reason is that since 2022, the company has adopted a contrarian expansion strategy and increased investment in government market and channel expansion, which has led to an increase in the breadth and depth of government market coverage.

Carrier-side revenue was 0.135 billion yuan, down 10.37% year on year. Considering the long delivery cycle of some operators' projects, the company's contract debt increased 29.22% year over year, and the company's leading market position in the operator field, we believe that the confirmation of the company's operator business revenue may be affected by delays in delivery of some projects. Looking ahead to the full year, we are optimistic about the company's operator business revenue growth.

Public sector revenue was 0.084 billion yuan, up 7.94% year on year. We think it is mainly due to the high level of security investment in critical information infrastructure industries such as energy, electricity, and finance.

By product: Cybersecurity product revenue was 0.366 billion yuan, up 12.55% year-on-year. App delivery and network product revenue was 0.093 billion yuan, up 6.84% year over year. Revenue from other operations was 0.044 billion yuan, up 44.89% year over year.

Increased gross margin and steady profitability

The company's 2024 H1 gross margin was 68.54%, up 1.07 pcts year over year. Single Q2 gross profit was 67.66%, up 2.61 pct year over year. The main reason for the increase in the company's gross margin in the first half of 2024 was a sharp increase of 10.49pcts in the gross margin of application delivery products, from 50.17% in the first half of 2023 to 60.66% in the first half of 2024. We believe that the cost advantage brought about by the company's own hardware development continued to increase.

The company's net profit margin for the first half of 2024 was 10.36%, an increase of 1.45 pct compared to the first half of 2023. The main reason was the year-on-year decline in sales expense growth and the decline in sales expense ratio and R&D expense ratio due to the control of R&D expenditure investment. Considering the strong seasonal nature of the cybersecurity industry's revenue confirmation, most companies were still losing money in the first half of the year. We believe that the company's profitability is at the leading level of the entire industry.

The results of the expansion strategy have been realized

Since 2022, the company has continued to promote an orderly expansion strategy. In 2022, the number of R&D personnel increased by 55 people (up 10.66% year on year), and the number of sales staff increased by 115 in 2023 (up 28.97% year on year), and has achieved good results since 2023. As the company continues to optimize resource integration, market development, product development, and operational efficiency, we believe that the company is expected to maintain a good growth trend throughout 2024.

Profit forecasting and valuation

We expect the company's revenue to reach 1.227, 1.437, and 1.652 billion yuan in 2024-2026, with year-on-year growth rates of +18.66%, +17.11%, and +14.95%; net profit to mother will be 0.159, 0.192, and 0.238 billion yuan, respectively, with year-on-year growth rates of +25.21%, +20.98%, and +24.05%, corresponding to 48 times PE in 2024, maintaining the “buy” rating.

Risk warning

Budget investment for downstream customers fell short of expectations; structural changes in market demand; technology loss and loss of core technical talent; competition led to a decrease in gross margin.