Event: The company publishes a performance report. In the semi-annual year of 2024, we achieved operating income of 0.873 billion yuan (-13.07%), net profit to mother of 0.206 billion yuan (+2.98%), after deducting non-net profit of 0.216 billion yuan (+2.84%). Gross margin reached 63.30% (+7.86pcts), and net operating cash flow was -0.253 billion yuan (+15.44%).

The scale of revenue was under phased pressure, and management efficiency showed resilience.

Due to the adverse effects of the external business environment, the overall revenue scale declined markedly year-on-year. The company actively responds to industry and market trends, continues to promote strategies to improve quality and efficiency, and achieve an improvement in revenue quality, and gross margin ratio (+7.86pcts). In terms of industry revenue structure, government and public institutions revenue is 0.425 billion yuan (-20.01%), state-owned enterprises revenue 0.247 billion yuan (-5.61%), and commercial and other revenue is 0.195 billion yuan (-6.24%). Among them, some segments grew strongly, with revenue from the health sector (+46.45%), revenue from the energy industry (+33.42%), revenue from the political and legal sector (+31.13%), and revenue from the transportation industry (+15.63%). In terms of new direction and new business, cloud security revenue (+51.52%), cloud computing revenue (+35.80%), and Xinchuang security revenue (+22.99%). Currently, Xinchuang applications are accelerating penetration and coverage from the government and public institutions to all industries such as finance, telecommunications, electricity, petroleum, and transportation. The country has successively issued a number of guidance documents on cybersecurity and data security, and potential rigid market demand under regulatory and compliance requirements will grow steadily step by step. At the same time, China has successively issued ultra-long-term special treasury bonds, which are earmarked for the implementation of major national strategies and security capacity building in key areas, and will also effectively resolve the budget issue of medium- to long-term and large-scale capital investment in related fields. The company actively explores the deep integration and innovation of “AI+ security”, increased investment in cloud computing R&D, promoted the deep integration of “cloud computing+security”, and achieved continuous rapid growth in new circuit businesses such as cloud security and cloud computing in an unfavorable market environment. We believe that judging from the industry's market prospects, with the financial support of the country's ultra-long-term treasury bonds, the information network security industry will benefit in the medium to long term. Judging from the operating results of the enterprise, Tianrongxin's revenue quality has improved, and the new direction and new business are still growing rapidly, demonstrating development resilience in an unfavorable environment.

The overall quality of operations has improved steadily, and the profit side is flexible in terms of performance.

With the revenue scale falling by more than 10% year on year, the company achieved a steady year-on-year increase in return and deducted non-net profit, and a steady improvement in overall business quality. In terms of operating cost control, operating costs (-28.41%) and gross profit margin (+7.86pcts) have significantly reduced costs and increased efficiency. In terms of cost control, the total of the four expenses during the period (-2.86%) decreased slightly. Among them, management expenses (-30.64%) were mainly due to a year-on-year decrease in share payment expenses during the reporting period; R&D expenses (-5.80%) were basically completed in the early layout of the company's new direction and technology; the company continued to maintain strengthened investment in marketing and markets in recent years, resulting in sales expenses (+9.71%). Meanwhile, net cash flow from operating activities (+15.44%) continued to increase rapidly on the basis of 0.517 billion yuan (+290.59%) for the full year of 2023. We believe that the development strategy to improve quality and efficiency that the company has actively promoted in recent years is gradually being implemented, and the overall operating results are gradually showing.

In the future, as the market operating environment improves, the profit side of the company may show better performance flexibility.

Actively explore the deep integration of “cybersecurity+AI” technology, and be brave in protecting and empowering the development of new quality productivity in the era.

The company has accumulated security data for many years in terms of malicious samples, risk information, threat knowledge, security intelligence, etc. Since 2019, it has successively released various innovative products such as firewalls, intrusion prevention, intrusion detection, zombie monitoring, IoT security access gateways, data leakage prevention, database auditing and protection, network auditing, big data analysis, situation awareness, intelligent intranet threat analysis, EDR, and sandboxes. Based on AI technologies such as large models, small models, natural language processing, machine learning, and deep learning, rich technical achievements have been formed in the fields of detection and analysis of malicious samples, detection and traceability of attacks, inference and generation of security intelligence, automated vulnerability mining and evaluation, and intelligent security services and operations. At present, a series of products such as the Tianwen Big Model System, the product Xiaotian, and the Tianwen Intelligent Computing Cloud Platform have been launched, which are mainly used in scenarios such as threat detection, safe operation, knowledge question and answer, and computing power management.

In the field of low-altitude economy, we provide network security, data security, and cloud computing products and solutions, covering infrastructure, base stations, and aircraft scenarios involved in the low-altitude economy; in the field of integrated vehicle road cloud security, form an integrated security protection system for clouds, tubes, terminals, and edges, and launch intelligent connected vehicle security solutions; in the field of satellite Internet security, we have launched network security solutions such as satellite application service platforms and satellite remote sensing systems, which have been implemented domestically and in many countries along the “Belt and Road”. In terms of industrial Internet security, the company pioneered the “dual security integration” technology concept, formed a complete industrial Internet security product, solution and service system, and released a full range of special products covering industrial Internet security construction, supervision, operation and capacity improvement. The company's products and solutions have been widely implemented in more than 80 business scenarios in more than 30 industries, including electricity, petroleum, rail transit, metallurgy, coal, tobacco, medicine, automobile manufacturing, and machinery manufacturing

Investment advice

We believe that the company's operation and management efficiency has shown resilience, and the profit side is still resilient in terms of performance. In the future, as the market business environment improves, the company's forward-looking layout in new directions and new business is still worth looking forward to. The company's revenue for 20242026 is estimated to be 3.444 billion yuan, 3.948 billion yuan, and 4.528 billion yuan, respectively; net profit to mother is 0.254 billion yuan, 0.308 billion yuan, and 0.362 billion yuan respectively, corresponding to the current PE being 20X/17X/14X, respectively, maintaining a “buy” rating.

Risk warning

Downstream demand falls short of expectations; technology selection accelerates; market competition intensifies.