Incidents:

On October 26, 2024, the company released the third quarter report: in the first three quarters of 2024, the company achieved revenue of 1.582 billion yuan, -3.98%; net profit to mother -0.169 billion yuan, +31.83% year-on-year; net profit without return to mother -0.185 billion yuan, +29.95% year-on-year.

With 2024Q3, the company achieved revenue of 0.709 billion yuan, +10.21% year over year; net profit to mother was 0.036 billion yuan, which turned a year-on-year loss into a profit; after deducting non-attributable net profit of 0.031 billion yuan, the year-on-year loss was reversed.

Investment highlights:

The company's many businesses progressed steadily. 2024Q3 profit turned loss into profit 2024Q3, and the company achieved revenue of 0.709 billion yuan, +10.21% year-on-year; net profit to mother was 0.036 billion yuan, which turned a year-on-year loss into profit. The main reason was that the company continued to promote strategies to improve quality and efficiency, and the results of cost control were evident during the period.

In the first three quarters of 2024, the company's management steadily promoted various business processes to promote high-quality development. The company has long adhered to the development concept of independent innovation, openness and integration. Based on NGTNA, the next-generation trusted network security architecture, the company forms a comprehensive security system with comprehensive perception, intelligent collaboration, dynamic protection, and cohesion empowerment based on network security as the core, big data, and cloud services as the delivery model.

The company's gross margin continues to recover and increase investment in cloud computing R&D

The company's gross margin was gradually restored, and various expense ratios remained stable. In the first three quarters of 2024, the company's gross profit margin was 63.96%, +1.65pct year on year, net profit margin -10.71%, year-on-year -4.37%; the company's sales/management/ R&D expenses ratio was 42.10%/10.25%/34.01%, respectively, +3.07pct/-2.73pct/-1.50pct. The company actively responds to industry and market developments, continues to promote strategies to improve quality and efficiency, and the quality of revenue has improved markedly.

The company increased investment in cloud computing research and development. In the first three quarters of 2024, the company's R&D expenses were 0.538 billion yuan, -8.05% over the same period. The main reason was that the company's early layout of new directions and technologies was basically completed, and R&D expenses declined; however, the company continued to increase investment in cloud computing R&D to provide capabilities such as hyperconvergence, desktop cloud, cloud storage, and cloud disaster recovery to meet the differentiated needs of various industries.

Released the Tianwen Large Model System, from AI Safety 1.0 to 3.0

Build a large Tianwen model system and develop a cybersecurity architecture fully enabled by AI. In 2023, artificial intelligence technology will be integrated into NGTNA 2.0, and the trusted network security architecture system will be more intelligent.

In 2024, the company released the Tianwen Big Model System to fully enable products and solutions. The Tianwen Big Model System is an AI security brain. It provides automated research and judgment, and provides large model application services for security products in scenarios such as safe operation, knowledge quiz, and computing power management.

The company has built an enterprise-level AI security capability system covering computing power platforms, training platforms, application platforms and related product applications, and released a series of products such as the Tianwen Big Model System, the product Xiaotian, and the Tianwen Intelligent Computing Cloud Platform, which are mainly used in scenarios such as safe operation, knowledge question and answer, and computing power management. Along with the further support of AI capabilities, security capacity building has also evolved from single-point enhanced protection to intelligent aggregation analysis and comprehensive intelligent collaboration capabilities, making the transition from AI security 1.0 to 3.0.

Profit forecast and investment rating: The company is a leading cybersecurity, big data and cloud service provider in China. It continues to develop new products and new businesses, and is expected to benefit from increased demand for cybersecurity and the development of artificial intelligence technology. According to the company's three-quarter report, adjusted to the company's profit forecast, the company is expected to achieve revenue of 3.604/4.221/4.926 billion yuan in 2024-2026 and net profit of 0.251/0.319/0.409 billion yuan, corresponding to the 2024-2026 EPS of 0.21/0.27/0.35 yuan and PE of 31/24/19x, maintaining a “buy” rating.

Risk warning: policy risk, increased industry competition, product launch risk, goodwill impairment risk, credit development risk, etc.