Incident: The company released its 2024 semi-annual report, achieving revenue of 0.873 billion yuan, a year-on-year decrease of 13.07%; realized net profit to mother of 0.206 billion yuan, an increase of 2.98% year on year; and net cash flow from operating activities was -0.253 billion yuan, up 15.44% year on year.

The results of improving quality and efficiency have been remarkable, and the quality of revenue has improved markedly. The company actively responds to industry and market developments and continues to promote strategies to improve quality and efficiency. The company's gross margin increased significantly during the reporting period, reaching 63.3%, an increase of 7.86 percentage points over the previous year. Expense control also had an obvious effect. The company's total expenses during the reporting period decreased by 2.63% year on year. Among them, the company's early layout of new directions and technology was basically completed, R&D expenses decreased by 5.80% year on year; management expenses decreased by 30.64% year on year; the company continued to invest in marketing, and sales expenses increased 9.71% year on year. The cash flow situation also improved, and net cash flow from operating activities increased 15.44% year over year.

Forward-looking layout of AI technology and active expansion of new business. In the field of network security and data security, the company fully empowers various products such as firewalls, UTM, IDPS, zombie, vulnerability scanning and management; released a database audit and protection system based on the Tianwen Big Model, with built-in products, Xiaotian can intelligently analyze customer questions and respond quickly to customer needs; in the field of cloud computing and cloud security, it releases new products and versions such as Tianwen Intelligent Computing Cloud Platform, Cloud Security Management Platform, Hyperconvergence, Desktop Cloud, and Tianrong Taihang Cloud; in the field of AI cybersecurity, it released the Tianwen Big Model to provide large-scale application model services for related cybersecurity products; In the field of security, Xinchuang released new product models such as server cryptography machines, database auditing, unidirectional gateway, terminal threat defense, desktop cloud terminals; in the field of industrial Internet, vehicle networking, and IoT security, it released industrial Internet security shooting ranges, industrial control firewalls, vehicle intrusion and defense systems, vehicle network security testing platforms, and launched comprehensive train vehicle network security, and smart traffic IoT security; in the field of commercial cryptography, it released solutions such as password service management platforms, server cryptographic machines, and cloud servers New products such as cryptographic machines, collaborative signature systems, and key management systems; in the field of security operations, new products such as Tianzun Big Model System, Big Data Analysis System, and Vulnerability Scan Management Platform were released. During the reporting period, in terms of new business directions, cloud security revenue increased 51.52% year on year, cloud computing revenue increased 35.80% year on year, and Xinchuang security revenue increased 22.99% year on year.

Maintain a “buy” rating. The company continues to advance strategies to improve quality and efficiency, while forwardly deploying AI technology to develop new businesses. As downstream demand in the cybersecurity industry is still recovering, we expect the company's 2024-2026 revenue of 3.564/4.167/4.715 billion yuan and net profit of 0.287/0.406/0.53 billion yuan to maintain a “buy” rating.

Risk warning: Competition increases risk; downstream demand recovery falls short of expectations; growth in new areas falls short of expectations.