Event: On August 28, 2024, the company released its 2024 annual report. 2024H1 achieved revenue of 1.574 billion yuan, a year-on-year increase of 3.42%; net profit to mother of 0.182 billion yuan, which changed from profit to loss; net profit after deducting non-attributable net profit of -0.1 billion yuan, an increase in year-on-year losses. The results are in line with market expectations.

Key points of investment

Q2 performance was under pressure in the short term, and safety products grew steadily: 2024Q2 achieved revenue of 0.651 billion yuan in a single quarter, a year-on-year decrease of -11.30%; 24Q2 achieved net profit of -0.069 billion yuan, from profit to loss; 24Q2 realized deduction of non-net profit of -0.052 billion yuan, which changed from profit to loss year-on-year. By product, safety products achieved revenue of 1.104 billion yuan, up 14.13% year on year, gross profit margin of 58.94% (-2.43 pct); safety operations and services achieved revenue of 0.458 billion yuan, a decrease of 15.14% year on year, and a gross profit margin of 51.09% (-7.32 pct year on year).

Q2 Gross margin began to pick up, and the three fees fell year over year: the company's new orders grew rapidly in the first half of the year, and collaborative revenue with China Mobile continued to grow rapidly. The gross margin of 24H1 was 56.51%, a year-on-year decrease of 3.75pct, and the 24Q2 gross margin increased 13.77 pcts to 64.59% month-on-month. The company's policy of flexibly adjusting business strategies according to changes in the external environment led to a total decrease of 2.69% year-on-year. In addition, the company further strengthened repayment management. 24H1 repayment increased 13.69% year-on-year, and the balance of accounts receivable continued to decline compared to the beginning of the period.

Increase R&D investment in the direction of strategic innovation and continue to strengthen the emerging security sector: As a subsidiary of China Mobile dedicated to network communication security, the company undertakes a major responsibility to support China Mobile's network security sector. While actively optimizing the cost structure, it adheres to scientific and technological innovation, and deepens collaborative R&D cooperation with China Mobile to consolidate and continuously enhance the company's core competitiveness. 24H1's total R&D investment increased 5.54% year on year, and the emerging security business sector continued to show innovative results. Among them, the revenue of the cloud-related security sector increased by more than 200% over the same period last year. By product, revenue from cloud security, identity trust products, 5G+ industrial Internet security testing products, and IoT security access protection products increased by more than 150% over the same period last year.

Profit forecast and investment rating: Considering the impact of the company's project bidding pace, the company's 2024-2026 EPS was lowered to 0.69/0.88/1.12 yuan (previous value: 0.76/0.96/1.19 yuan). It is expected that as orders from downstream customers resume in the future, the company is expected to take the lead in benefiting and maintaining a “buy” rating.

Risk warning: Policy progress falls short of expectations; technological progress falls short of expectations; competition intensifies the impact; orders fall short of expectations.