Incident: The company released its 2024 semi-annual report, achieving operating income of 1.783 billion yuan, a year-on-year decrease of 28.17%, and net profit to mother of -0.82 billion yuan, and a decrease of 6.78% year-on-year.

Business strategy adjustments, sales payback and net profit both increased. In line with the actual situation in the macroeconomic environment, the company moved from focusing on scale to focusing on quality. The main factors behind the decline in the company's revenue in the first half of 2024H1 were: 1) This year, the company placed repayment and cash flow management first, strategically abandoning some customers whose expected repayments were not ideal; 2) the company also strategically abandoned some overall integration roles, and hardware and other revenue was drastically reduced compared to the same period last year; 3) the share of local government and public prosecution and law customers in the company's revenue structure declined further due to factors such as financial budgets. The company has also promoted refinement and management in terms of expenses and expenses. 2024H1 achieved both sales repayment and net profit growth, achieving sales repayment of 1.838 billion yuan, a year-on-year increase of 2.48%; net profit to mother -0.82 billion yuan, a year-on-year loss of 59.66 million yuan; net profit after deducting non-return to mother -0.854 billion yuan, a year-on-year loss of 0.125 billion yuan; net operating cash flow -0.826 billion yuan, an increase of 0.573 billion yuan, a year-on-year increase of 40.97% ; The amount of the three fees decreased by 27.67% year over year.

The core product line led the industry and won many tens of millions of benchmark orders. Focusing on “new productivity” customers, 2024H1 has won a number of large-scale projects spanning data security, cloud security, situation awareness, and terminal security product portfolios, including a data center cluster integrated security guarantee project at a computing power hub node in the country. The “Hyperscale Multi-Field Integrated Federal Shooting Range (Pengcheng Network Shooting Range) Key Technology and Systems” project that the company participated in the application won the second prize of the National Science and Technology Progress Award, making it the only national science and technology progress award in the field of cyber attack and defense this year. The company participated in an electronic data forensics technology research and application project and was awarded the first prize of the 2023 Ministry of Public Security Science and Technology Award. In May 2024, with reference to the latest “China IT Security Software Market Tracking Report” released by IDC, the company once again led the terminal security, data security, security analysis and intelligence markets. During the reporting period, the company achieved relatively good revenue performance in categories such as data security, border security, and situation awareness, which was higher than the company average.

Actively explore new opportunities in overseas markets. In terms of overseas markets, in the first half of the year, 2024H1 used its international R&D center and international business headquarters in Hong Kong as a bridgehead to accelerate the progress of its business layout in countries such as Indonesia, Oman, and Egypt. Furthermore, in recent years, China's high-end manufacturing industry has accelerated overseas, which has also brought new business opportunities to the company. Overseas markets have very different complexity and differences from domestic markets in terms of technical requirements, certification standards, etc., especially countries or regions with stricter requirements for network security, data security, and personal privacy protection, causing Chinese enterprises to face severe tests when going overseas. In response to this new incremental market, the company relied on the advantages of product and solution capabilities to establish many benchmark cases such as Cyrus in the process of going overseas in high-end manufacturing industries such as automobiles.

Maintain a “buy” rating. The company continues to optimize the quality of operations, has competitive core products in the industry, and actively explores overseas markets. Considering that downstream demand in the cybersecurity industry is still recovering, we adjusted the company's 2024-2026 revenue forecast to 6.63/7.292/7.975 billion and net profit forecast to mother 0.148/0.212/0.309 billion, maintaining the “buy” rating.

Risk warning: Risk of AI technology falling short of expectations; risk of rising raw material prices and labor costs; risk of increased industry competition; macroeconomic risk.