The company achieved revenue of 0.333 billion yuan (yoy +0.40%) in the first three quarters, net profit to mother of -38.04 million yuan (yoy -1.68%), after deducting non-net profit of -52.19 million yuan (yoy +29.17%). Among them, Q3 achieved revenue of 0.139 billion yuan (yoy -17.24%) and net profit of 12.3892 million yuan (yoy -8.00%) to mother. Benefiting from the optimization of the business structure and the effectiveness of cost control, the company's profit level continued to rise, and 24Q2-Q3 achieved profits for two consecutive quarters. Looking ahead to the whole year, we believe that the company's high-margin product business is expected to maintain a high share of revenue, and the profit level is expected to continue to rise throughout the year to maintain “purchases.”

Increased gross margin+cost control, optimistic about increased profit

The company's gross margin for the first three quarters was 46.27%, +4.25pct year on year. Of these, 24Q3 gross margin was 53.96%, +14.34pct year on year. The gross margin was significantly optimized, mainly benefiting from the reduction in the share of integrated projects with low gross profit margins and maintaining the expected increase in gross margin for the whole year. The company's sales/management/R&D expenses rate for the first three quarters was 15.13%/23.88%/19.68%, compared with -2.03pct/-3.42pct/-0.39pct. The cost control effect was outstanding. We believe that benefiting from increased gross margins+cost control, the company's profits are expected to increase.

Anti-quantum cryptography is being standardized, and the business layout is expected to enter the harvest period. In August '24, the US NIST issued the world's first anti-quantum cryptography federal information processing standard, and domestic anti-quantum cryptography standardization work is also accelerating. As a participant in the formulation of China's anti-quantum cryptography national standards, the company has the advantage of card slots. At the same time, the company has released a full set of quantum security solutions and a series of products, with complete solutions to resist the migration of quantum cryptographic algorithms, and completed pilot implementation in the financial industry. We believe that with the release of national standards, the company's anti-quantum cryptography business is expected to be released at an accelerated pace.

The equity incentive goals are clear, and I am optimistic about continuous management improvement

In July '24, the company released the “2024 Restricted Stock Incentive Plan”, which was officially implemented in September.

This equity incentive is based on the revenue/net profit growth rate as the assessment target for the lifting of sales restrictions. The condition is that the 24-26 revenue growth rate is not less than 10%/21%/33% compared to 23, or the 24-26 net profit growth rate is not less than 10%/25%/45% compared to 23. We believe that, benefiting from the gradual advancement of the industry's three business scenarios of credit innovation, data security, and anti-quantum cryptography, the company is expected to enter a new stage of high-quality development.

Investment advice: Target price of 23.65 yuan, maintain “buy”

Taking into account slow business progress in the first three quarters and lowering revenue forecasts, revenue for 24-26 is estimated to be 0.623, 0.739, and 0.883 billion yuan, respectively (previous values were 0.696, 0.87, and 1.093 billion yuan). Benefiting from the optimization of the product structure and maintaining expectations of an increase in gross margin, the company's net profit for 24-26 is estimated to be 0.068, 0.101, and 0.129 billion yuan respectively (previous values were 0.082, 0.106, and 0.157 billion yuan), respectively, taking into account the company's strengthened cost control and lower cost ratio expectations. Referring to a comparable company's consensus expectation (wind) average of 25E 53.1xPE, considering the company's advantageous layout in the emerging safety field, the company was given 25E 55xPE with a target price of 23.65 yuan (previous value 19.25 yuan) to maintain the “buy” rating.

Risk warning: Information security policies fall short of expectations, and the pace of security business promotion falls short of expectations.