The company released its mid-year report for 24 years. Revenue increased and losses were drastically reduced. During the reporting period, the company achieved total revenue of 0.549 billion yuan, a year-on-year increase of 20.54%; net profit to mother of -0.128 billion yuan, a year-on-year loss reduction of 54.13%. Non-net profit deducted -0.267 billion yuan, compared to -0.291 billion yuan in the same period last year. Among them, in the Q2 single quarter, the company achieved revenue of 0.354 billion, a year-on-year increase of 15.16%, and achieved net profit to mother of -0.093 billion yuan, a year-on-year loss reduction of 15.63%.

Since 24 years, the company has continued to implement contracts and accelerate project implementation. The company's total revenue has increased, and net profit to mother has drastically reduced losses. By product, electronic data forensic revenue in the first half of 2024 was 0.233 billion yuan, up 15.48% year on year, and gross margin increased by 3.11 pct year on year. Public safety big data revenue was 0.204 billion yuan, up 10.83% year on year. Due to intense competition in the industry, gross margin decreased by 12.6 pct compared to the same period last year. Digital government and enterprise digitalization achieved revenue of 0.068 billion yuan, an increase of 42.86% over the previous year. New cyberspace security revenue was 0.043 billion yuan, up 102.27% year on year, and gross margin increased by 21.75 pct year on year.

During the reporting period, the company actively controlled fees, and various expense rates were drastically reduced. The sales expense ratio was 32.55%, a year-on-year decrease of 2.11pct. The management fee rate was 30.08%, a year-on-year decrease of 5.94 pct. The R&D cost rate was 34.77%, a year-on-year decrease of 9.57pct, mainly due to the company's adjustment of the R&D investment structure. The company's consolidated gross margin for the first half of 2024 was 43.65%, a year-on-year decrease of 4.66pct.

The company continues to carry out technical iteration and product research and development around “product equipment and big data intelligence”, and continues to consolidate and deepen the fields of electronic data forensics and public safety big data business. The company's “Tianqing Public Safety Big Model Algorithm” passed the China Internet Information Office's in-depth synthesis service algorithm registration, and became the first major model algorithm in the field of public safety to pass the filing in China. In addition, the company continues to increase its strategic investment in the new cyberspace security, digital government and enterprise digital innovation circuit, and continues to launch products and solutions adapted to new scenarios, achieving a significant increase in revenue in related sectors.

Considering the macroeconomic impact and the company's performance in the first half of 2023 and 2024, we lowered our operating income and gross margin assumptions and predicted that the company's net profit due to mother in 2024-2026 would be 0.173/0.241/0.335 billion yuan, respectively (the original forecast net profit for 24-25 was 0.39/0.51 billion yuan), and the corresponding EPS was 0.20/0.28/0.39 yuan, respectively. Refer to comparable companies that gave the company 41 times PE in 25 years. The corresponding target price was 11.48 yuan, downgraded to an increase in holdings rating.

Risk warning

Competition in the cybersecurity market has intensified; personnel costs have fallen short of expectations; SDIC's digital investment has been slower than expected.