Key points of investment:

Incident: Wangsu Technology released its 2024 three-quarter report: 24Q1-Q3 achieved revenue of 3.61 billion yuan (YoY +2.64%), net profit of 0.429 billion yuan (YoY +0.79%), net profit of 0.304 billion yuan (YoY +3.24%), gross profit margin of 30.45% (-0.22pct), net profit margin 11.89% (YoY -0.22pct); 24Q3 achieved revenue of 1.31 billion yuan (YoY) +9.99%, +10.97% month-on-month), net profit of 0.132 billion yuan (YoY -21.30%, -16.94% month-on-month), net profit of 90.3 million yuan (-16.53% YoY, -21.47%), gross profit margin 28.21% (-4.19pct, YoY -2.02pct), net profit margin 10.07% (YoY -4.00pct, month-on-month -3.38pct).

Cost control has been strengthened, and three rates/amounts have continued to decline, and foreign exchange affects current profits. The company's 24Q1-Q3 sales, management and R&D expenses rates were 7.66%, 5.72%, and 9.27%, respectively, -1.08pct, -1.04pct, and -0.70pct, respectively. The absolute values of sales, management and R&D expenses were -10.01%, -13.09%, and -4.54% year-on-year respectively. Affected by exchange losses, 24Q1-Q3's cumulative exchange loss was 29.22 million, and the exchange gain was 53.09 million yuan for the same period last year. Of these, 24Q3 resulted in exchange losses of 41.61 million yuan. According to the company's official account, excluding the influence of exchange factors, Q1-Q3 net profit was 0.458 billion yuan, +22.99% YoY under the same caliber, Q3 net profit 0.174 billion, and +15.31% YoY under the same caliber.

Continuous technological innovation to achieve industry leadership. According to the company's official public account, the company won the “2024 National Private Enterprise Science and Technology Innovation Industry Innovation Typical Case”, and was selected as “China's Top 100 Internet Enterprises” for 11 consecutive years, and was selected as the IDC MarketScape: China's Zero Trust Network Access Market Leader; the three major cases of Wangsu Security were selected as “China's Top 20 Outstanding Security Projects (CSO20)”, and the company's e-commerce edge customized solutions based on the Serverless architecture were selected as the top ten representative cases of Serverless application practices of the Information and Communications Technology Institute.

Profit forecast: We expect the company's revenue for 2024-2026 to be 4.852 billion yuan, 5.107 billion yuan, and 5.392 billion yuan, net profit to mother of 0.627 billion yuan, 0.72 billion yuan, 0.811 billion yuan, EPS 0.26 yuan, 0.30 yuan, and 0.33 yuan, respectively. Referring to the company's historical valuation and the average valuation level of comparable companies, the company was given a dynamic PE range of 35-38X in 2025, corresponding to a reasonable value range of 10.33-11.21 yuan, which is “superior to the market” rating.

Risk warning: Overseas traffic growth falls short of expectations, new business expansion falls short of expectations, and domestic market competition intensifies.