Report summary

Investment event: Convinced releases report for the third quarter of 2024. In the first three quarters of 24 years, the company achieved a total operating income of 4.634 billion yuan, a year-on-year decrease of 3.63%; realized net profit to mother of -0.58 billion yuan, a year-on-year decrease of 6.25%; and realized deduction of non-net profit of -0.651 billion yuan, a year-on-year decrease of 8.18%.

Q3 Revenue turned positive, and gross margin was under pressure. Judging from the Q3 situation, the company achieved a total operating income of 1.926 billion yuan, an increase of 2.77% year on year; realized net profit to mother of 0.012 billion yuan, an increase of 54.76% year on year; and realized deducted non-net profit of 3.6477 million yuan, an increase of 126.89% year on year. The company's gross profit margin in the third quarter was 59.57%, down from 66.12% in the same period last year. This may be due to the increase in the company's raw material prices and increased procurement costs.

The three fees remained steady, and cash flow was under pressure. From an expense perspective, the company's sales/management/financial expenses during the reporting period were 1.901/0.287/-0.139 billion yuan, with year-on-year changes of -9.56%/1.73%/14.77%, respectively. Overall, it was relatively steady.

During the reporting period, the company's R&D expenses were 1.629 billion yuan, a year-on-year decrease of 5.78%. The deceleration rate was slightly faster than the change in revenue. Looking at the cash flow situation, the company's net operating cash flow in the first three quarters was -0.731 billion yuan, a year-on-year decrease of 698.23%, mainly due to an increase in payment payments for the purchase of raw materials and a slight decrease in sales revenue during the reporting period.

AI capabilities are continuously updated, and security GPT 4.0 updates data security scenarios. In October 2024, the company launched two innovative achievements: secure GPT4.0, which enables dynamic and static data classification and automatic data risk analysis, and a new distributed storage EDS version 520 with AI ransomware protection capabilities. The secure GPT4.0 data security model can automate the classification and classification of static data in databases and flow data such as APIs, greatly improving the efficiency of classification and classification. Furthermore, its distributed storage EDS can achieve seamless data switching in the face of the most common hardware failure — hard disk failure; in simulated multiple fault tests, EDS can quickly resume business within 3 to 5 seconds. Furthermore, the intelligent AI anti-ransomware function integrated by EDS uses a bypass detection method to launch in-depth AI analysis only when abnormal behavior is discovered, ensuring safety while reducing performance consumption to 3%-5%. As AI capabilities continue to be iterated, the company is expected to continue to provide more security solutions incorporating AI, and its product capabilities will continue to improve.

Investment advice: Considering that downstream customers are still cautious about IT investment, and the company's new order situation during the reporting period is not ideal, we forecast that the company's revenue for 2024-2026 will be 7.608/7.837/8.445 billion yuan, respectively, and net profit to mother will be 0.196/0.352/0.505 billion yuan, respectively. Currently, the company's revenue and profit performance are pressured by the slow recovery in the macro environment, but we are still optimistic about the company's competitive barriers and leading edge in the technology products and customer markets. At the same time, the company adjusted its business strategy policy in a timely manner, improved revenue quality, and cost reduction results continue to show. Therefore, we maintain our company rating as an “overweight” rating.

Risk warning: risk of AI progress falling short of expectations, risk of changes in industry policies, risk of macroeconomic fluctuations, risk of untimely information updates