Commercial secrets industry policy incentives continue. The company plans to once again acquire Jiangnan Tianan to consolidate its leading position in the field of cloud cryptographic security; with the rise of quantum computing, the company actively lays out a new generation of anti-quantum cryptography products.

Incident: The company released its report for the third quarter of 2024. The first three quarters achieved operating income of 0.255 billion yuan, YoY +7.81%; realized net profit due to mother 0.014 billion yuan, compared with 0.04 billion yuan in the same period last year; realized net profit of 0.003 billion yuan without return to mother, 0.032 billion yuan in the same period last year; achieved net operating cash flow of -0.03 billion yuan, YoY -122.22%. Q3 achieved operating income of 0.085 billion yuan in a single quarter, YoY -35.66%; realized net profit of 0.00045 billion yuan, compared with 0.03 billion yuan in the same period last year; realized net profit deducted from mother - 0.005 billion yuan, compared to 0.024 billion yuan in the same period last year.

The progress of the project fell short of expectations, and the combined cost investment led to a decline in Q3 results. Q3 The company's revenue declined. We believe that the progress of some of the company's projects fell short of expectations, due to varying degrees of delays in project delivery and acceptance; the decline in profit was mainly due to investment in R&D and sales management. The company's sales/management/R&D expenses increased by 8.29/2.35/2.36 pct year-on-year respectively in the first three quarters.

It is proposed to acquire Jiangnan Cheonan to consolidate its leading position in the field of cloud cryptographic security. According to the company's announcement, the company plans to use 0.172 billion yuan of its own capital and 90 million yuan of overfunded capital to acquire 81.8181% of Jiangnan Tianan's shares; the counterparty voluntarily makes profit forecasting promises. During the business cycle from 2024 to 2026, the target company will achieve annual net profit growth and ensure that the three-year cumulative net profit is not less than 315% of the 2023 audited net profit to mother (20.3296 million yuan). Following the acquisition of Jiangnan Keyou, this acquisition will further strengthen the company Report to achieve strong alliances. According to the company's official account, Jiangnan Tianan is a well-known commercial cryptographic enterprise in China. It has significant advantages in cloud cryptography, cloud cryptographic cluster management, password resource scheduling, and security isolation. It has continued to provide cloud cryptographic products and services to many cloud service providers. This acquisition will further consolidate Sanwei Xin'an's absolute leading position in the field of cloud cryptographic security.

Actively lay out the anti-quantum field and release a new generation of anti-quantum cryptography products. With the rise of quantum computing, anti-quantum cryptographic algorithms and hardware chips are still important research directions for the company. In the first half of 2024, the company already has cooperative pilot projects for anti-quantum cryptography products. The company will accumulate practical experience through pilot projects, continuously improve product performance, and launch competitive anti-quantum cryptography products in the face of quantum computing threats. On September 13, 2024, the company held the “Exploring a New Future of Infinite Security” Cryptographic Innovation Conference 2024 in Beijing. At the conference, the company released a new generation of anti-quantum cryptography products, “White Paper on Anti-quantum Cryptography Technology and Application 2024)” and a number of innovative new cryptographic products. Among them, the company released a new generation of anti-quantum cryptographic chips, anti-quantum cryptographic boards, anti-quantum UKEY, anti-quantum cryptographic machines, anti-quantum gateways, anti-quantum digital certificate authentication systems, and anti-quantum key management systems. Quantum-resistant cryptographic infrastructure.

Maintain an “overweight” investment rating. Commercial secrets industry policy incentives continue, the company's new products are gradually entering the market, and end-user development results are remarkable. The net profit forecast for 2024-2026 is 0.089/0.113/0.144 billion yuan, maintaining the “gain” rating.

Risk warning: Policy implementation falls short of expectations, industry competition intensifies, and costs rise