Jiayuan Technology released its three-quarter report: Q3 achieved revenue of 38.4087 million yuan (yoy -32.28%, qoq -72.53%) and net profit of -25.6352 million yuan (yoy -634.28%, qoq -208.69%).

Q1-Q3 2024 achieved revenue of 0.195 billion yuan (yoy +4.60%), net profit to mother of -17.8542 million yuan (yoy -155.24%), deducting non-net profit of -24.5832 million yuan (yoy -192.33%). Due to price pressure on some of the company's products, gross margin declined, and at the same time, the company's credit impairment accrual increased, which further led to a negative net profit return to mother. Considering that the company's competitiveness continues to increase and the continuous launch of new products in the field of information security, we maintain a “buy” rating in the medium to long term in terms of development.

Changes in sales structure have led to large fluctuations in gross margin

The company's gross margin level for the third quarter was 17.06%, down 46.34pct from the same period last year, mainly due to changes in product structure, and price pressure on some high-margin products for military use. The gross profit margin for the first three quarters was 43.57%, down 16.27pct from the same period last year. Since this year, the company's military business with the highest gross margin has been affected by the industry and demand is weak, but according to the Chinese report, the government business with the lowest gross margin has achieved relatively rapid growth, leading to large fluctuations in the company's gross margin on the structural side. We believe that the prices of the company's products have been fully adjusted, and there is limited room for the price of similar products to continue to fall.

Expense rates have increased significantly, and accrued credit impairment has reduced net profit

The company's expense ratio for the first three quarters was 48.38%, up 7.54 pct from the same period last year; among them, sales expenses/management costs/R&D expenses increased by 0.38 pct/3.32 pct/1.46 pct compared to the same period last year, and the R&D expenditure ratio reached 25.07%, and the R&D investment intensity was high. Furthermore, the company accrued a credit impairment loss of 21.16 million yuan, and accrued 7.34 million yuan in the same period last year, further reducing the company's net profit level.

In recent years, the company has developed a confidential business, and it is expected that R&D investment will continue to maintain a high level, which will greatly help expand the product spectrum and enhance technological competitiveness.

The importance of information security is highlighted. The central position of cyber security in the aerospace sector has not changed. The importance of information security has continued to rise in recent years. In the field of the Party, government, and military, particular emphasis is placed on the autonomy, control and high reliability of technology and products. The company's products are fully autonomous and controllable, laying a strong foundation for subsequent participation in market competition. The company's network security products have a high share of support in the aerospace field. Currently, China's commercial aerospace development momentum is strong, and the company is expected to continue to benefit.

Profit forecasting and valuation

We predict that the company's net profit for 24-26 will be 0.021/0.071/0.105 billion yuan (previous value 0.059/0.091/0.136 billion yuan). The reason for the adjustment was that demand for some of the company's products slowed and price pressure was present, and R&D investment remained high, corresponding to EPS of 0.23, 0.77, and 1.14 yuan. Comparatively, the company's 25-year iFind unanimously expected PE to be 55 times, giving the company a 25-year PE valuation of 55 times, and the corresponding target price was 42.24 yuan (previous value was 31.36 yuan).

Risk warning: the risk that the company's new product market expansion falls short of expectations; the company's product quality risk.