Key points of investment:

Short-term downstream spending in the cyber security industry is weak, putting pressure on the company's performance

The company released its three-quarter report for 2024. The first three quarters of 2024 achieved operating income of 2.326 billion yuan, a year-on-year decrease of 8.19%; net profit to mother was -0.21 billion yuan, which changed from profit to loss over the previous year, after deducting net profit of -0.148 billion yuan, from profit to loss over the previous year.

In Q3 alone, 2024Q3 achieved operating income of 0.752 billion yuan, a year-on-year decrease of 25.65%; net profit to mother -0.028 billion yuan, which changed profit from profit to loss year-on-year, after deducting net profit of -0.048 billion yuan after deducting net profit to mother, which changed from profit to loss year-on-year.

The company's short-term performance is under pressure, mainly affected by the slowdown in downstream spending in the domestic cybersecurity industry. According to IDC's latest “Global Cybersecurity Spending Guide” (2024 V2 edition), the 2023-2028 growth rate of China's cybersecurity market is expected to drop by 2.8 pct. After adjustment, the growth rate of the domestic cybersecurity market is expected to be lower than 1pct of the global market.

Transactions related to China Mobile reached 0.75 billion yuan in the first three quarters, and there is still plenty of room for Q4

In the first three quarters of 2024, the company's related transactions with China Mobile amounted to 0.746 billion yuan, an increase of 80.04% over the previous year. Considering the company's previous announcement, related transactions with China Mobile are expected to be 1.85 billion yuan in 2024, and we believe there is still plenty of room for Q4 related transactions.

The company continues to increase the construction of collaborative channels with China Mobile. In terms of cloud-related security, it has already opened a channel for security capabilities to the cloud, held a national cloud security business deployment meeting, and launched 16 cloud security products with 42 specifications and 116 cloud security products on the mobile cloud mall. In terms of standard products, the company's ONes business platform has been launched at the China Mobile customer center, signed and completed provincial framework agreements, and achieved the construction of benchmark projects in all provinces.

Profit forecasting and valuation

Considering the pressure on the company's third-quarter results, we adjusted our previous profit forecast and predicted that the company's revenue for 2024-2026 would be 4.761, 5.106, and 5.625 billion yuan, respectively, and net profit to mother would be 0.445, 0.616, and 0.739 billion yuan, respectively. Considering that China's cybersecurity market will become more mature in the future, the strategic cooperation between the company and China Mobile is progressing steadily, maintaining a “buy” rating.

Risk warning: Strategic cooperation with China Mobile fell short of expectations; R&D and promotion of emerging businesses fell short of expectations; demand from downstream customers fell short of expectations; market competition intensified.