Incident: Kai Mingchen released the 2024 semi-annual report. The company achieved revenue of 1.574 billion yuan in the first half of the year, up 3.42% year on year; realized net profit to mother - 0.182 billion yuan, a year-on-year increase from profit to loss; realized deducted non-net profit of 0.1 billion yuan, a decrease of 24.4% year on year; new orders grew rapidly in the first half of the year, and gross margin increased 13.77 percentage points month-on-month to 64.59% in the second quarter.

Fluctuations in stock prices of participating companies have led to a decline in profits, and management of expenses and repayment has achieved results. In the first half of the year, the company achieved net profit of 0.182 billion yuan, mainly due to: 1) changes in the share price of the listed company Yongxin Zhicheng, which confirmed a loss of 55.132 million yuan due to changes in fair value; 2) Fluctuations in the stock price of Aerospace Software invested by participating companies led to investment losses of 84.884 million yuan. The company strengthened cost control, with three expenses totaling 1.101 billion yuan in the first half of the year, a year-on-year decrease of 2.69%; of these, sales/expenses/R&D expenses were 0.54/0.094/0.467 billion yuan, respectively, down 1.05%/5.59%/3.94% year-on-year. At the same time, the company further strengthened repayment management. In the first half of 2024, repayments increased 13.69% year on year, accounts receivable balance continued to decline compared to the beginning of the period, and sufficient capital holdings were sufficient, creating momentum for the company's healthy and sustainable development.

Safety products grew steadily, and gross margin gradually rebounded in Q2. By product: In the first half of 2024, the company's security products achieved revenue of 1.104 billion yuan, an increase of 14.13% year on year; security operations and services achieved revenue of 0.458 billion yuan, a decrease of 15.14% year on year. Overall gross margin for the first half of the year was 56.51%, down 3.76 percentage points year on year. Among them, gross margin increased 13.77 percentage points month-on-month to 64.59% in the second quarter.

Continue to strengthen collaboration and integration strategies with China Mobile to boost the emerging security sector. In January 2024, China Mobile Group officially became the actual shareholder of Kai Ming Chen. The company further implemented the mobile “BASIC 6” science and technology innovation development plan, focusing on security fields such as AI+ security, cloud-related security construction, integration of data elements and security, identity authentication and password security. In the first half of the year, the company's 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.

The company focused on promoting AI+ security integration and released the Jiutian Taihe Big Model. The company undertook the task of strategic research and development of China's mobile security model. With the support of Mobile's powerful computing power resources, the training was completed in “nine days? “Taihe Security Big Model” was officially released during the Fujian “Digital China” Summit in May 2024. Using the large security model as the core, the company successfully built an intelligent system where large and small models collaborate with each other. In terms of “AI+ Security Operation”, the company released the “Anxing Security Operation Assistant” application, which became the decision-making and control core of the company's next-generation intelligent security operation; in terms of “AI+ threat detection,” the company launched the “Anstar Threat Detection Intelligence” research and development, which significantly improved the level of intelligence intelligence intelligence intelligence.

Profit forecast: As a leading company in the cybersecurity industry, the company continued to strengthen its collaborative integration strategy with China Mobile in the first half of the year. Although the profit side is currently under pressure, the company's performance is expected to improve as the company's emerging security sector strengthens in the future, cooperates with China Mobile, and expands its business. We expect the 2024-2026 EPS to be 0.45/0.64/0.80 yuan, respectively, and the corresponding P/E will be 28.78/20.05/15.99 times, respectively.

Risk factors: The collaboration between the company and China Mobile fell short of expectations; the development of the company's emerging security sector fell short of expectations; and the implementation of the company's big security model fell short of expectations.