Incident: The company released its 2024 semi-annual report. In 2024, H1 achieved revenue of 2.71 billion yuan, a year-on-year decrease of 7.7%, and realized net profit to mother of -0.59 billion yuan, a year-on-year decrease of 6.9%. Among them, in Q2 2024, the company achieved revenue of 1.67 billion yuan, a year-on-year decline of 2.8%. The decline was narrower than in Q1, achieving net profit to mother of -0.1 billion yuan, an increase of 27.1% over the previous year.
The Internet security business declined slightly, and the share of cloud computing business increased. In 2024, H1 was affected by the slowdown in the overall domestic economic growth rate. Although the company's various businesses progressed steadily, overall revenue declined slightly. By product, in 2024, H1's network security business achieved revenue of 1.4 billion, down 7.3% year on year, accounting for 51.7% of revenue, which was basically the same; cloud computing business achieved revenue of 1.11 billion, down 4.4% year on year, but revenue accounted for 40.9%, up 1.4 percentage points year on year; basic network and IoT business achieved revenue of 0.2 billion, down 24.1% year on year, accounting for 7.5% of revenue, down 1.6 percentage points year on year.
Gross margin declined slightly, and the three expense ratios improved markedly. In 2024 H1, the company's overall gross margin was 61.3%, down 3.1% year on year, mainly due to a year-on-year decrease in gross profit and an increase in the share of cloud computing business with low gross margin. By product, the gross profit margin of the network security business was 78.2%, down 1.2% year on year; the gross profit margin of the cloud computing business was 42.6%, down 5.3% year on year; and the gross profit margin of the basic network and IoT business was 47.8%, down 4.3% year on year. At the same time, the company's cost reduction and efficiency measures have achieved remarkable results. The overall cost rate of the 2024H1 company's three items decreased by 7.4% year-on-year.
The development of AI is driving a new model of network security demand, and the multi-faceted layout is helping the new development of cyber security leaders. The company is one of the earliest domestic enterprises engaged in cybersecurity business. After years of accumulation and development, the company has become one of the leading enterprises in the domestic cybersecurity industry. With the continuous development of artificial intelligence in recent years, AI has put forward new requirements in the field of cybersecurity. Using “AI First” as an innovative research strategy, the company continues to implement AI technology and capabilities in various products. At the 2024 spring new product launch, the company released a secure GPT 3.0 upgrade, AI computing power platform, and EDS 502 storage version to help the company build barriers for efficient and high-quality implementation of AI technology applications in the future.
Profit forecasting and investment advice. The company's revenue for 2024-2026 is estimated to be 7.31 billion, 7.75 billion and 8.72 billion yuan respectively, net profit due to mother is 0.2 billion, 0.24 billion, and 370 million yuan, respectively, and EPS is 0.48, 0.58, and 0.88 yuan, respectively, and the corresponding PE is 97, 79, and 52 times, respectively. Combining the static average PE of comparable companies in 2023 and the average PE for the next three years, I am convinced that PE valuations are all below the industry average. Considering the company's leading position in the industry and the average valuation with reference to comparable companies, it was covered for the first time to give a “holding” rating.
Risk warning: The risk of a sharp macroeconomic downturn, industry competition increases the risk, and product iterative upgrades fall short of expectations.