Incident: The company released its 2024 semi-annual report. H1 achieved operating income of 0.873 billion yuan, -13.07% year-on-year; net profit to mother of -0.206 billion yuan, and losses narrowed year-on-year. Gross profit margin 63.30%, +7.86pct year over year. Single Q2 revenue was 0.451 billion yuan, YoY -15.82%, net profit to mother -0.116 billion yuan.

The quality of the company's revenue has improved significantly, and early R&D investment in new business and new directions has basically been completed. The company continues to advance the strategy of improving quality and efficiency. The H1 gross margin was +7.86pct year on year. The increase in gross margin was mainly due to the gross margin of the company's main source of revenue, the gross margin of basic safety products +16.85pct year over year. R&D costs/management expenses/sales expenses were -5.80%/-30.64%/+9.71%, respectively. The total cost for the period decreased by 2.63% year-on-year. The decline in R&D expenses was mainly due to the company's basic completion of the initial layout of the new direction and technology. The decline in management expenses was mainly due to a year-on-year decrease in share payments.

The company's cloud security and cloud computing revenue increased year-on-year, and the health and energy industry's revenue growth rate was relatively fast.

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. Revenue was split by industry. Revenue from the health industry increased 46.45% year on year, revenue from the energy industry increased 33.42% year on year, revenue from the political and legal industry increased 31.13% year on year, and revenue from the transportation industry increased 15.63% year on year.

In the field of network security and data security: AI fully empowers various products such as firewalls, UTM, IDPS, zombie, vulnerability scanning and management; releases 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: releasing new products and versions such as the Tianwen Intelligent Computing Cloud Platform, Cloud Security Management Platform, hyperconvergence, desktop cloud, Tianrong XinTaihang Cloud; in the field of AI cybersecurity, released the Tianwen Big Model to provide cybersecurity-related products Large model application services; in the field of Xinchuang security, new models of products such as server encryption machines, database audits, one-way gateways, terminal threat defense, desktop cloud terminals, etc.; in the field of industrial Internet, vehicle networking, and IoT security, it releases solutions such as industrial Internet security shooting ranges, vehicle firewalls, and smart traffic IoT security.

Profit forecast: The company uses cybersecurity hardware as the basic platform, and new business fields such as cloud security, cloud computing, and Xinchuang security are developing rapidly. We expect the company's net profit to be 0.222/0.274/0.334 billion in 2024/2025/2026. Maintain a “buy” rating.

Risk warning: Industry development, company business progress, profit forecasts and valuations fall short of expectations.