In the first half of the year, the company took the initiative to adjust its business strategy to high-quality development, and the quality of operation was further optimized. We are optimistic that the collaboration will be further deepened after China Electronics Strategy increases, and that new productivity customers will contribute to faster revenue growth.

Incident: The company released its 2024 semi-annual report. In the first half of the year, it achieved operating income of 1.783 billion yuan, YoY -28.17%; net profit to mother -0.82 billion yuan, YoY +6.78%; net profit after deducting non-return to mother -0.854 billion yuan, YoY +12.78%; net operating cash flow - 0.826 billion yuan, YoY +40.97%. Q2 achieved revenue of 1.078 billion yuan, YoY -30.76% in a single quarter; realized net profit of 0.34 billion yuan, YoY +1.87%; realized net profit without deduction of 0.33 billion yuan, YoY +4.54%.

Actively adjust the business strategy to high-quality development, and both sales repayment and net profit increase. The company's revenue declined in the first half of the year. We believe it was mainly due to the company's active shift from focusing on scale to focus on quality, taking into account the actual situation in the macroeconomic environment, and strategically abandoning some customers whose expected repayments were not ideal and overall integration related projects. Judging from the industry structure, enterprise-level customers continued to be the main source of revenue contributions in the first half of the year. Revenue generation from customers above level one million accounted for more than 70% of revenue, while individual revenue generation growth rate of customers above one million level was close to 38%, and operators, finance, and specialty industries won many 10 million benchmark orders. Under the goal of high-quality development, the company's operating quality was further optimized, and indicators such as repayment, cash flow, expense ratio, and profit improved significantly. Among them, net profit to mother decreased by 59.66 million yuan in the first half of the year; net profit after deducting non-return mother decreased by 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%; and the amount of three fees decreased 27.67% year on year.

China Electronics is strategically increasing its holdings to deepen collaboration, and is optimistic about rapid revenue growth for “new quality productivity” customers. In July '24, CLP Financial Investment, a wholly-owned subsidiary of China Electronics, the strategic shareholder of the company, plans to increase its shares by 5% through an agreement transfer. China Electronics' increase in holdings will optimize Qianxin's shareholding structure and enhance strategic, business and capital collaboration between Qianxin and China Electronics. Focusing on “new productivity” customers in the first half of the year, the company 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 national computing power hub node (winning bid amount exceeding 40 million yuan); in the first half of the year, 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; in addition, the company's new AI+ security products were launched one after another, such as April 24, based on QAX-GPT security The model knowledge question and answer service experience center was officially launched.

Maintain a “Highly Recommended” investment rating. The company's operating quality continues to improve, and is expected to achieve net profit of 0.188/0.346/0.6 billion yuan in 24-26. Maintain a “Highly Recommended” investment rating.

Risk warning: Policies fall short of expectations, downstream customer demand falls short of expectations, and industry competition intensifies.