Sino-Singapore SEC's 3Q24 net profit increased to 0.047 billion yuan, and the profit side's year-on-year growth rate exceeded market expectations

The company announced results for the first three quarters of 2024: revenue fell 21.2% year on year to 0.362 billion yuan; net profit to mother changed from profit to loss year over year to -0.047 billion yuan; net profit changed from profit to loss year over year to -0.049 billion yuan.

Single quarter 3: Revenue increased 30.1% year on year to 0.195 billion yuan, up 136.1% month on month; net profit to mother increased year on year to 0.047 billion yuan, which was positive month on month; net profit changed year on year from negative to 0.047 billion yuan year on year, positive month on month, and profit side growth rate exceeded market expectations.

Development trends

AI empowers product strength increases, and revenue improves month-on-month. In the first three quarters, the company continued to use AI-enabled products to carry out AI intelligent identification of electromagnetic signals and AI detection research, combined with the large model capabilities of the AI Innovation Empowerment Laboratory, expanded the intelligent analysis capabilities of encrypted traffic, strengthened telecommunication networks and Internet fraud prevention and analysis systems, and built AI application products such as Heris Knowledge, AI Security Operation Center (AISOC), Terminal Threat Detection and Response Platform (EDR), and Xiaosai Security GPT. The product strength continued to improve. According to the company's official announcement, in July 2024, the company reached an in-depth strategic cooperation with Suzhou Tianzhun Technology Co., Ltd.; in the same month, in-depth cooperation was reached with the Shaanxi Environmental Information Center on software and hardware operation and maintenance and network security security projects. The company's revenue in the first three quarters was -21.2% year-on-year, and the 1Q/2Q/3Q24 revenue growth rates were -60.6%/+13.0%/+30.1%, respectively. The revenue growth rate in the single quarter changed from negative to positive and continued to recover, and the trend improved quarter by quarter.

Gross profit margins have increased and costs have narrowed. In the first three quarters, the company's gross margin was -3.9ppt to 76.4% year over year, mainly affected by declining revenue and product restructuring. In the 3rd quarter, benefiting from revenue growth and effective cost control, gross margin was +10.4ppt to 83.9% yoy, and +25.2ppt month-on-month. In the first three quarters, the company's total three expenses were -4.7% to 0.349 billion yuan, and sales/management/ R&D expenses increased by 5.5/3.0/8.2ppt to 36.4%/14.6%/45.4% year over year, respectively, mainly affected by the decline in revenue. In the third quarter of a single quarter, the company's total three expenses were -4.7% to 0.116 billion yuan, and -2.3% month-on-month. Sales/management/R&D expenses decreased by 9.8/2.3/9.5 ppt to 22.1%/9.0%/28.4% year-on-year, respectively, and decreased by 34.3/13.4/36.4ppt, respectively. In the third quarter of a single quarter, benefiting from gross profit growth and good cost control, the company's net interest rate/deducted non-net interest rate increased by 24.2/24.8ppt to 24.3%/23.9% year-on-year, respectively. In the first three quarters, the company's net operating cash inflow changed from negative to 0.078 billion yuan year-on-year. Cash received from selling goods and providing services increased 27.5% year over year, mainly due to the company's progress in project collection. Net operating cash flow for the 3rd quarter turned negative year-on-year to -0.017 billion yuan, turning negative month-on-month.

Profit forecasting and valuation

Maintain outperforming industry ratings. Considering the uncertainty of revenue recognition and cost fluctuations, we lowered 2024/25e revenue 14%/15% to 0.687/0.788 billion yuan, and 2024/25e net profit 25%/36% to 0.097/0.118 billion yuan. We are optimistic about the company's quarterly recovery trend under the expansion of AI products and maintain the target price of 35 yuan (based on 51x 2025e P/E). The current stock price corresponds to 57/47x2024/25e P/E, with 8% upward space.

risks

Downstream customer demand falls short of expectations, overseas business expansion falls short of expectations, and new business expansion falls short of expectations.