Event

Recently, the company released its 2020 results, KuaiBao. The company expects to achieve a total operating income of 954 million yuan in 2020, an increase of 5.48% over the same period last year, and a net profit of 240 million yuan belonging to shareholders of listed companies, down 18.58% from the same period last year.

Brief comment

The main results are as follows: 1. The performance is better than expected, and the net profit increases positively after excluding the influence of incentive expenses.

In 2020, the company achieved a total operating income of 954 million yuan, an increase of 5.48% over the same period last year, and a net profit of 240 million yuan, down 18.58% from the same period last year, which was 6.67% higher than the median forecast of 225 million yuan in the third quarterly report and slightly better than expected. Excluding the impact of incentive costs, the company achieved a net profit of 304 million yuan in 2020, an increase of 2.85% over 2019. In a single quarter, 20Q4 achieved 329 million yuan in revenue, an increase of 11.89% over the same period last year, showing a trend of improvement. The revenue growth rates of 20Q2 and 20Q3 were-21.43% and 3.29%, respectively. 20Q4 achieved a net profit of 96.5991 million yuan, down 18.76% from the same period last year, showing an improvement trend. The year-on-year growth rate of net profit of 20Q2 and 20Q3 was-50.47% and-31.16%, respectively. Excluding equity incentive costs, 20Q4 achieved a net profit of 125 million yuan, an increase of 5.00% over the same period last year. Affected by COVID-19 's epidemic situation in 2020, the signing and implementation of some market projects of the company were delayed, but on the premise of taking preventive measures against the epidemic, the company actively promoted the implementation of the project, reducing the negative impact of the epidemic on the company's operating performance, and the growth rate of revenue and profit of the company has gradually improved since 20Q3.

2. The company is a leading manufacturer of network visualization and will benefit from the recovery of the industry.

On the one hand, the network visualization industry benefits from the national attention to information security, and the government continues to increase investment in the industry, on the other hand, it benefits from the development of 5G and the outbreak of traffic. the expansion of backbone network to 400G will bring the demand for equipment upgrading. Broadband network products:

Affected by the epidemic in 2020, the procurement of related projects was delayed, and some signed orders could not be implemented (especially some overseas projects could not be carried out normally). The company is more cautious in revenue recognition. It is expected that the company's broadband network product revenue will decline to a certain extent in 2020. Government project bidding is expected to start in 2021, coupled with the implementation of the company's on-hand orders, the company's broadband network product revenue is expected to resume growth. Mobile network products: in 2020 entered the 5G scale construction period, 5G network from the system architecture, protocol signaling, technical characteristics and other aspects have been comprehensively updated, the network visualization equipment also has higher technical requirements. The company has strong product competitiveness in multi-standard integration, scene fusion and multi-product integration, laying out 5G solutions in advance and investing more R & D resources and market resources in situation awareness products based on broadband wireless signals. with strong competitiveness, it has achieved a certain share in the relevant market, and we expect the company's mobile network product revenue to increase by more than 20% in 2020 compared with the same period last year. From the perspective of 4G cycle, 2-4 years after commercial purchase is the peak period, so 2021-2023 will be the peak period of 5G product procurement, the market scale is expected to reach 1.95 billion yuan, 2.78 billion yuan, 1.75 billion yuan, the company's market share is expected to maintain a leading level.

3. The company strengthens the back-end business expansion, and the proportion of software revenue increases gradually.

The company's broadband network products and mobile network products are network visualization infrastructure products (front-end), accounting for more than 80% of the company's revenue until 2019. Since 2019, the company has integrated big data and artificial intelligence technology, deeply studied the needs of various industry segments, actively extended to the back-end business, and vigorously expanded network security content products and big data operating products in the domestic market. From the perspective of market scale, the scale of the back-end market is about 3-4 times that of the front-end market. At present, the company's telecom fraud prevention system and big data operating products have been deployed on a large scale in more than 10 provinces and cities in China, and the company is expected to account for more than 30% of the company's back-end business revenue in 2020. Previously, the market may be worried that the company will expand its back-end business and deteriorate its relationship with some traditional integrators, thus affecting the company's front-end business, but from the actual situation in 2020, the company's front-end business has not been greatly affected. On the one hand, the company and the integrators still maintain a good relationship, on the other hand, the two sides will still cooperate well in some projects.

4. Profit forecast and investment advice: with the launch of bidding for broadband network-related projects and the volume of mobile network 5G products, the company's network visualization infrastructure business is expected to resume rapid growth. The company's development of the back-end market, with the improvement of market penetration, may become the main driving force for the company's future revenue and profit growth. We estimate that the company's annual income in 2020, 2021 and 2022 will be 954 million yuan, 1.325 billion yuan and 1.733 billion yuan respectively; the net profit will be 240 million yuan, 265 million yuan and 447 million yuan respectively, and the PE will be 37X, 34X and 20X respectively; if the equity incentive fee is added back, the net profit in 2020, 2021 and 2022 will be 304 million yuan, 404 million yuan and 539 million yuan respectively, and the PE will be 29x, 20x and 17x respectively, maintaining the "buy" rating.

5. Risk tips: government budget is shrinking, the development of domestic network visualization industry is not as expected; the pace and scale of customer procurement are not as expected; the organizational structure of industry customers is adjusted, the number of customers is reduced, and the growth rate of investment is declining; market competition is intensified; the development of the company's back-end business is not as expected; changes in the international environment affect supply chain security and overseas expansion. The development of quantum communication may lead to the difficulty of splitting, convergence and diversion, which affects the demand of the industry.