Matters:

The company achieved operating income of 0.255 billion yuan in the first three quarters of 2024, up 7.81% year on year; net profit to mother was 14.1619 million yuan, down 64.33% year on year; after deducting non-net profit of 3.24 million yuan, down 90.00% year on year.

Commentary:

Performance is under pressure in the short term, and investment in R&D and sales continues to be increased. In the third quarter of 2024, the company achieved operating income of 85.3334 million yuan, a year-on-year decrease of 35.66%, and net profit to mother of 0.4526 million yuan, a year-on-year decrease of 98.47%.

The decline in performance was mainly due to the progress of some projects falling short of expectations, and delays in project delivery and acceptance to varying degrees. In terms of gross margin, the company's gross margin for the first three quarters of 2024 was 75.64%, an increase of 3.01 pct over the previous year. On the cost side, in the first three quarters of 2024, the company's R&D expense ratio, sales expense ratio, and management expense ratio were 31.89%, 34.41%, and 13.31%, respectively, up 2.36pct, 8.29pct, and 2.35pct. Among them, the R&D cost rate and sales expense ratio increased, mainly due to increased investment in R&D and increased market development efforts.

Innovative breakthroughs in the field of quantum communication help the safe development of the industry. On September 13, the company released a new generation of anti-quantum cryptography products, the “White Paper on Anti-Quantum Cryptography Technology and Applications (2024)”, and a number of innovative new cryptographic products, marking that the company has taken a key step in dealing with cryptographic security needs in the quantum era, which will help consolidate and enhance the company's core competitiveness.

It is proposed to acquire Gangnam Cheonan and expand the cryptographic blueprint. On October 30, the company announced its intention to acquire Jiangnan Tianan. Jiangnan Tianan focuses on commercial cryptographic product R&D, innovation and technical services. It has a deep accumulation in cryptographic technology research and application innovation, and has a system integrating R&D, production, sales and service of cryptographic products and solutions. It is expected to further enrich the company's product matrix and downstream application scenarios and promote rapid business development.

Investment proposal: The company plans to acquire Jiangnan Tianan, showing continued optimism about the cryptographic industry. We expect the company's revenue for 2024-2026 to be 0.453/0.596/0.763 billion yuan, and net profit to mother 0.076/0.116/0.134 billion yuan. In terms of valuation, refer to the valuation level of comparable companies, and consider that the company is a leading enterprise in the commercial cryptographic field. The company was given 50xPE in 2025, corresponding to a target price of about 50.5 yuan, maintaining a “recommended” rating.

Risk warning: The introduction of quantum communication products to the market falls short of expectations; industry competition intensifies; product development falls short of expectations; business integration and synergy effects fall short of expectations.