Incident: The company released its 2024 semi-annual report. H1 achieved operating income of 1.574 billion yuan, +3.42% year-on-year; net profit to mother -0.182 billion yuan, deducting net profit of non-return to mother -0.1 billion yuan. The gross profit margin was 56.51%, -3.76pct year over year. Single Q2 revenue was 0.651 billion yuan, year-on-year -11.30%, net profit to mother -0.069 billion yuan, gross profit margin of 64.59%, +13.77pct month-on-month. The R&D cost rate/management cost rate/sales expense ratio were 29.69%/5.98%/34.34%, respectively. R&D costs/management costs/sales expenses were -3.94%/-5.59%/-1.05%, respectively; the total of the three 24H1 expenses decreased by 2.69% year on year.

Comment: The collaborative revenue between H1 and China Mobile continued to grow rapidly, and the gross margin for Q2 alone increased sharply from month to month. Operating revenue by product is based on safety products/safety operations and services/other businesses, which achieved operating income of 1.104/0.458/0.012 billion yuan, +14.13%/-15.14%/-20.52% year-on-year, with gross margins of -2.43/-7.32/-16.65pct, respectively; the company's single Q2 gross profit margin was 64.59%, +13.77pct month-on-month.

The net profit loss due to 2024H1 was mainly due to a decrease in investment income and income from changes in fair value compared to the same period last year. H1 was affected by “Aerospace Software” stock price fluctuations and confirmed an investment loss of 0.085 billion yuan in accordance with the Equity Law; the H1 stock price of the participating listed company “Yongxin Zhicheng” changed, confirming a loss of 0.055 billion yuan due to changes in fair value; sold part of the shares in the participating listed company “Yongxin Zhicheng” and confirmed disposal income of 0.027 billion yuan.

The Jiutian·Taihe security model was released to accelerate the implementation of the dedicated large-scale model in the field of network communication security.

Based on China Mobile's nine-day model, the company trained and completed the “Nine Day Taihe Security Model” with the support of China Mobile's strong computing power resources; based on the Jiutian Taihe Security Big Model, it built an AI security intelligence group to enable product and service capability upgrades. With a large security model as the core, the company successfully built an intelligent system where large and small models collaborate with each other, and applied it to products or services such as security operation, threat detection, and threat intelligence analysis.

The emerging security business segment grew rapidly, and cloud-related security business revenue was +200% year-on-year. Relying on the cloud base technology of the company's fourth-generation technology architecture, the “Pangu Platform” and the cloud-native security application development paradigm, we have successfully created cloud-native and SaaS versions, which can effectively meet the security compliance and security management requirements of private clouds and public clouds. 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: Based on the company's interim results, the company's net profit forecast for 2024/2025/2026 is adjusted to 0.83/1.011/1.202 billion yuan.

Risk warning: Industry development, company business progress, profit forecasts and valuations fall short of expectations.