The company released its 2024 semi-annual report. The first half of the year achieved revenue of 0.4 billion yuan (-10.6% YoY), net profit to mother of 59.812 million yuan (YoY -14.1%), net profit of 36.571 million yuan (YoY -27.3%), and gross margin of big data software products and services in the main business reached 78.4% (+4.3 Pcts year over year). The company's big model continues to be implemented, AI revenue is growing rapidly, and the purchase rating is maintained.

Key points to support ratings

Safety product and system integration and other revenue declines led to a year-on-year decline in the company's performance. In the first half of '24, the company's big data and artificial intelligence business revenue increased year over year, while security product and system integration and other business revenue declined year over year. Among them: (1) traditional security products were affected by delays in downstream customer project progress and delays in new procurement, leading to a decline in safety revenue; (2) the company focused on software business and actively reduced business related to system integration. In addition, the amount of immediate levies and refunds from the company's software products and disposal of other illiquid financial assets decreased compared to the same period last year, resulting in a year-on-year decrease of 5.253 million yuan in other income.

Big models continue to be implemented, and AI revenue is growing rapidly. In the first half of 2024, the company's R&D investment in large models increased 13.8% year-on-year. The company has successfully implemented large-scale model application scenarios in financial, media, security, enterprise and other advantageous industries, and added large-scale model implementation projects such as Environmental Report's “Carbon Engine” knowledge question and answer assistant, Sichuan Luzhou and Zigong public security intelligent assistant, Haier intelligent customer service, and intelligent analysis assistant for certain target results. The revenue of large model projects in the first half of the year was 48.625 million yuan, and overall AI product and service revenue increased 27.7% year over year.

Overseas business is accelerating, and overseas layout is progressing steadily. The company's news collection covers 196 countries and regions, in 130+ languages. In the first half of 2024, the company reached a cooperation with Huaxing Hai'an Company to provide political and economic intelligence early warning services for central enterprises doing business overseas, based on the Tianmu open source intelligence platform and the company's strong open source data collection capabilities, to avoid the risk of emergencies and avoid investment losses for central enterprises. The second phase of the 10 million project in cooperation between the company and a Hong Kong disciplinary force is being actively promoted.

valuations

Net profit for 24-26 is estimated to be 2.0, 3.0, and 360 million yuan, EPS 0.25, 0.37, and 0.46 yuan (considering the impact of security industry customer budgets, downgraded 10% to 15%), and the corresponding PE is 44X, 30X, and 24X, respectively. The company's big model continues to be implemented, AI revenue is growing rapidly, and the purchase rating is maintained.

The main risks faced by ratings

The big model fell short of expectations; safety customer demand fell short of expectations; technology research and development fell short of expectations.