Incidents:

The company released its 2024 semi-annual report. In the first half of 2024, it achieved operating income of 0.698 billion yuan, an increase of 0.29% year on year; net profit to mother was 0.276 billion yuan, loss decreased by 32.56% year on year, after deducting net profit from mother - 0.286 billion yuan, loss decreased by 32.12% year on year.

For Q2 alone, 2024Q2 achieved operating income of 0.417 billion yuan, an increase of 15.96% year on year; net profit to mother was 0.075 billion yuan, loss decreased by 65.68% year on year, after deducting net profit not returned to mother - 0.082 billion yuan, and loss decreased by 63.89% year on year.

reviews

Q2 Revenue growth exceeded expectations, and order volume in key industries achieved rapid growth by business segment: data security, commercial cryptography and Xinchuang achieved rapid growth: the company's data security products were deeply integrated with the power of the constant brain and security domain model, and revenue increased more than 150% year over year; commercial cryptographic business revenue increased more than 100% year over year; at the same time, the company's customer stickiness increased, repurchase revenue increased dramatically, and subscription revenue continued to show a positive growth trend.

By industry, revenue growth in key industries such as public security, energy, Internet communications, central state-owned enterprises, and operators was good: revenue from the power industry increased by more than 150% year on year; revenue from central state-owned enterprises and telecom sectors all increased by more than 60% year on year; revenue from the government sector achieved steady growth, with revenue from big data bureaus growing rapidly; orders from key industries such as electricity, transportation, and Internet communication all achieved relatively rapid growth in the second quarter.

Fee control measures have achieved remarkable results, and the quality of operations continues to improve

The company's 2024H1 sales, R&D, and management expenses decreased by 22%, 26%, and 34%, respectively. The total of the three major expenses decreased 25% year over year, and the share of the three fees in revenue decreased by 32% compared to the same period last year. The main reason for the decline in the company's expenses is the reduction in the number of company personnel and the improvement of the cost-side structure. At the end of 2024H1, the number of employees in the company fell 17% year on year. Considering the company's cost-side optimization, we believe the company's loss reduction trend in the second half of 2024 is sustainable.

Achieving a steady increase in gross margin

The company's 2024H1 gross margin was 55.15%, up 1.23pcts year on year. Among them, the 24Q2 single quarter gross margin increased by more than 7% compared to the same period last year. The company's many management optimizations have contributed to a steady increase in gross margin: 1) increasing the integration of public R&D platforms; 2) increasing the application of artificial intelligence technology. We believe there is still room for growth in the company's long-term gross margin.

Profit forecasting and valuation

Considering that the company's overall revenue growth rate has slowed due to the macroeconomic environment, but cost control has been effective, we adjusted our previous profit forecast. The company's 2024-2026 operating income is 2.276, 2.393, and 2.636 billion yuan, and net profit to mother is 0.022, 0.086, and 0.158 billion yuan. Although the company's short-term profits are under pressure, we are optimistic about the long-term positive development trend of the cybersecurity industry under the guidance of the national security strategy. At the same time, considering that the company's future profits are expected to show good resilience under fee control measures, it maintains a “buy” rating.

Risk warning

The expansion of the new strategy fell short of expectations; profit recovery fell short of expectations; downstream customer demand recovery fell short of expectations; and market competition intensified.