Matters:

The company released its 2024 semi-annual report: in the first half of 2024, it achieved operating income of 1.574 billion yuan, a year-on-year increase of 3.42%; net profit loss to mother of 0.182 billion yuan, profit of 0.185 billion yuan in the same period last year; loss of 0.1 billion yuan after deduction of non-net profit, loss of 0.081 billion yuan for the same period last year.

Commentary:

Revenue continued to grow, and the profitability of the main business improved month-on-month. 2024H1 achieved operating income of 1.574 billion yuan, up 3.42% year on year, and continued to grow. Single Q2 achieved operating income of 0.651 billion yuan, down 11.30% year on year, under short-term pressure, mainly due to the postponement of some key projects; in terms of profit, the decline in 2024H1 net profit was clearly mainly due to the decline in investment income and fair value change income compared to the same period last year; in terms of gross margin, 2024H1 gross margin was 56.51%, down 3.76 pcts year on year. The gross margin for single Q2 was 64.59 %, up 13.77pct month-on-month, and the profitability of the main business increased compared to Q1.

Quickly integrate into mobile and build a large network security sector. The company fully integrates into China Mobile's operation system with the three roles of “security core technology aggressor, safety product service leader, and safety operation system supporter”, and continues to innovate collaborative mechanisms. In the first half of the year, it received more than 100 million dollars in collaborative R&D and innovation funding, and increased R&D investment in fields such as safety models, data security, cloud security, 5G security, industrial internet security, and smart traffic safety to build a large network communication security sector.

Strengthen cutting-edge scientific and technological innovation, and the results are outstanding. The company continues to make efforts in the fields of artificial intelligence security, cloud and computing network security, data security, new industrial security, integrated security operation centers, and cybersecurity threat intelligence, overcoming difficulties and continuously exploring, strengthening the company's technical strength, and opening up new tracks. At the same time, the company relies on China Mobile's new information infrastructure and new information service system to superimpose the company's autonomous, controllable, safe and reliable, and native security capabilities to build a stable new security infrastructure. The emerging security business sector continues to show innovative results. Among them, the revenue of the cloud-related security sector increased by more than 200% over the same period last year. By product, 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.

Investment suggestion: Considering the overall pressure on the cybersecurity industry in 2024, we adjusted the profit forecast. The company's revenue for 2024-2026 is 5.2 billion yuan, 5.977 billion yuan, and 6.849 billion yuan, corresponding growth rates of 15.4%, 15.0%, and 14.6%; net profit to mother is 0.773 billion yuan, 0.969 billion yuan, and 1.158 billion yuan (the previous value for 2024-2025 was 1.294 billion yuan, 1.598 billion yuan), corresponding growth rates were 4.2%, 25.4%, and 19.6%, respectively; the corresponding EPS (diluted) was 0.63 yuan, 0.80 yuan, and 0.95 yuan, respectively. In terms of valuation, with reference to comparable companies, we gave the company 30xPE in 2024, corresponding to a target price of 18.9 yuan, maintaining a “strong” rating.

Risk warning: Industry competition intensifies; policy promotion falls short of expectations; product application falls short of expectations.