The decline in revenue narrowed sharply in the second quarter. The company released its 24-year report. The company's revenue for the first half of the year was 2.707 billion yuan (-7.72%), net profit to mother 0.592 billion yuan (-6.94%), after deducting non-return net profit of 0.654 billion yuan (-11.30%). Looking at Q2 alone, the company's revenue was 1.672 billion yuan (-2.84%), net profit attributable to mother was 0.103 billion yuan (+27.10%), and net profit not attributable to mother was 0.144 billion yuan (+10.73%). Overall demand recovery in the first half of the year was still slow.

All businesses declined in the first half of the year, and the corporate market showed resilience in demand. By business, the company's cybersecurity business revenue is about 1.398 billion yuan (-7.34%), mainly due to the decline in revenue from mature products such as firewalls and behavior management. Cloud computing and IT infrastructure revenue was 1.106 billion yuan (-4.43%). Among them, SDDC product lines and the like continued to grow, and desktop cloud revenue declined significantly. The basic network and IoT business revenue was approximately 0.203 billion yuan (-24.13%). In terms of industry, the corporate market grew by 2.51%, and the revenue performance of government, public institutions, financial and operator customers was poor, with a year-on-year decline of 15.88% and 18.23%.

Cost control has continued to be strengthened, and contract liabilities have shown a high growth rate. The company's gross margin was 61.34%, down 3.14 percentage points from the previous year, mainly due to the decline in cloud computing gross margin and an increase in the share. The company continued to reduce costs and increase efficiency, and sales, management and R&D expenses changed -10.26%, +1.93%, and -5.29% year-on-year.

Cash flow from operating activities declined significantly. The main reason was that Q1 companies responded to price increases in some upstream raw materials, made strategic preparations, and increased cash to purchase goods and receive labor payments. Contract debt reached 1.388 billion yuan in the first half of the year, an increase of 19.45% over the previous year.

The IT industry is still under pressure, and continued accumulation awaits recovery. Basic IT has been greatly affected by the pace of macroeconomic recovery. The corporate market is growing, and the increase in contract debt has shown positive signs to a certain extent. The company continued to release new products and upgrades in the first half of the year. In the field of security: based on massive POP nodes around the world, the speed of access to multinational networking services was increased by more than 10 times; security GPT has been tested and applied in real environments in more than 130 enterprises. Cloud computing: The hyperconverged 6.10.0 version added five major features, convinced the AI computing power platform AICP, and achieved five times the inference performance at half the inference cost. On the other hand, as VMware reduces its domestic team, does not support simplified Chinese, etc., and its support for the domestic market weakens, the company is expected to further increase the replacement of VMware.

Risk warning: Macroeconomics affects IT spending; industry competition intensifies; new business development falls short of expectations.

Investment advice: Maintain an “better than the market” rating. Due to the impact of the pace of macroeconomic recovery, profit forecasts were revised downwards. The estimated net profit for 2024-2026 is 0.34/0.573/0.764 billion yuan (the original forecast was 0.421/0.694/0.925 billion yuan for 24-26). The corresponding current PE is 56/33/25 times. Considering the company's current gradual recovery and deepening product accumulation, it still has great performance elasticity even after demand picks up, maintaining a “superior to the market” rating.