Investment events: The company released its 2024 semi-annual report: H1 revenue in 2024 was 0.873 billion yuan, down 13.07% year on year; net profit to mother was 0.206 billion yuan, loss was reduced by 2.98% year on year; after deducting non-return net profit of 0.216 billion yuan, loss decreased by 2.84% year on year.

The quality of revenue has improved, and revenue from new businesses has maintained a good growth rate. The company's revenue for the first half of 2024 was 0.873 billion yuan, down 13.07% year on year, mainly from basic security products, big data and situation awareness products and services, and basic security services. Looking at product structure, in the first half of 2024, revenue from basic security products was about 0.532 billion yuan, accounting for 60.88% of revenue, a year-on-year decrease of 20.01%; revenue from big data and situation sensing products and services was 0.063 billion yuan, accounting for 7.23% of revenue, a year-on-year decrease of 12.03%; revenue from basic security services was 0.14 billion yuan, accounting for 16.08% of revenue, a decrease of 9.45%; revenue from cloud computing and cloud security products and services was 0.132 billion yuan billion yuan, accounting for 15.13% of revenue, an increase of 20.19% year-on-year. In terms of new business directions, cloud security revenue increased 51.52% year over year, cloud computing revenue increased 35.80% year over year, and Xinchuang's revenue increased 22.99% year over year. In terms of industry segments, revenue from the health industry increased 46.45% year on year; revenue from the transportation industry increased 15.63% year on year; revenue from the political and legal industry increased 31.13% year on year; and revenue from the energy industry increased 33.42% year on year. The number and quality of the company's large projects increased significantly.

Net cash flow from operating activities improved, and gross margin increased. The company's H1 gross margin in 2024 was 63.30%, up 7.86pcts year over year. Among them, the gross margin of basic security products increased 16.85 pcts year on year, with a significant increase, mainly due to a decrease in integrated project contracts; the gross margin of cloud computing and cloud security products and services increased by 9.18 pcts year on year, mainly due to the expansion of cloud computing cloud security business, and the share of software increased. The company's net cash flow from operating activities continued to improve significantly during the reporting period, with a net increase of 15.44% year-on-year. The company's cost control effect was obvious. The total cost for the 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. Due to the seasonal characteristics of the cybersecurity industry, the company's net profit to mother was -0.206 billion yuan, and the loss was reduced by 2.98% year-on-year.

Cybersecurity boundaries will be further broadened, and the development of AI brings demand to the security industry. “Artificial Intelligence+Security” further enhances security service capabilities. With the release of relevant policies, emerging industries such as the low-altitude economy, vehicle and road cloud integration, intelligent driving, and satellite internet have entered a stage of rapid development. As the cornerstone and important component of new types of productivity, cybersecurity boundaries will be further broadened, and companies all have corresponding layouts. In terms of AI, after AI applications in various fields, the data security requirements brought about by the application and the security requirements brought about by the large model as the infrastructure's own vulnerability are new requirements for cybersecurity, which will bring about an increase in the market in recent years. At the same time, the construction of intelligent computing centers will also bring security requirements, which will increase security requirements in the future.

Investment proposal: The company's revenue for 2024/2025/2026 is estimated to be 3.616/4.122/4.643 billion yuan; the company's net profit to mother is 0.27/0.353/0.466 billion yuan. Considering the company's layout in terms of AI and data elements and innovation, and achieving effective fee control, a “buy” rating is given.

Risk warning: New market development risk, company business progress falling short of expectations, increased market competition, risk of declining cash flow, risk of economic recovery falling short of expectations.