Event: on July 14, the company issued a half-year performance forecast for 2021. Benefiting from the extensive layout of security SE, e-government, new infrastructure and other directions, the company's security chips, commercial passwords, security services and other products maintained steady growth. 21H1 revenue increased by about 95.0% compared with 20H119H1, respectively, and net profit decreased by 66% to 74% compared with the same period in 2020. The quality of operation continues to improve and the supervision of the Internet giants is stricter, and the related compliance orders are higher and more certainty. Visteon, as the only listed company under China Network Security, is expected to become the most popular target for privacy security, data security and privacy computing. 1) with the increasing intensity of supervision and promotion of Internet manufacturers, data security and privacy computing are expected to benefit significantly, which is driven by the dual needs of big data's converged applications and privacy protection. it is also the inevitable requirement of current policies and regulations at home and abroad. KPMG predicts that its technical services revenue is expected to reach 10 to 20 billion yuan in 2023, and it will even pry up the operating income space of hundreds of billions of data platforms. 2) China Electronic Technology Network Information Security Co., Ltd., the controlling shareholder of Weststone, is a network security sub-group built by China Electric Power Group, the actual controller of the company, according to the development needs of the national security strategy. it has natural advantages in supporting the strategic task of national network security and winning the trust of customers in key areas. as the only listed company in China, the company has a really scarce shareholder background. It is expected to benefit significantly from the rapid release of the need for private computing.

The implementation of laws and regulations, the high growth of new application scenarios and network security events jointly promote the demand of the commercial password market, the widespread application of passwords has become a trend, and the company has actively launched a new field of layout of "password service cloud platform". 1) on the policy side, in 2019, China successively promulgated laws and regulations in the network security industry, such as Equal Insurance 2.0 and the password Law, and the demand for encryption security is expected to continue to be released. Among them, the new standard of "Isobao 2.0" password is more detailed and clear than "Isobao 1.0". It defines strict evaluation standards in terms of password authentication, password technology, password country and industry standards; 2) the ubiquitous application of passwords in new scenarios such as cloud computing and the Internet of things has become a trend. Cryptographic technology services cloud computing, big data, AI Internet of things and other applications, password services widely cover the government, enterprises, organizations and the public, universal application has become a trend, leading manufacturers of passwords are expected to stand out in the ubiquitous trend. China NetAnn Visteon launched a new digital economic security solution-the new field of "password service cloud" layout.

The superimposed management change of the long-term equity incentive plan is expected to improve operational efficiency. The new management of the company has a professional and technical background, and the equity incentive plan is valid for 10 years. The total amount of the underlying stock involved in the restricted stock granted does not exceed 10% of the total share capital of the company. The initial incentive targets are about 335 managers, core technical personnel and backbone employees who have a direct impact on the overall performance and sustainable development of the company, the company and the holding subsidiary, accounting for about 15% of the employees. Long-term equity incentive plan superimposed management changes may improve operational efficiency. Channel construction is constantly improving, Xinchuang has abundant orders on hand and high certainty of performance support. Weststone is the core beneficiary of Xinchuang. According to the annual report, it won the bid of more than 2 billion in 2020, ranking in the forefront of the market. The net cash flow of operating activities reached 620 million yuan, an increase of 736.15% over the same period last year. The company has built a full product system covering chips, modules, platforms, machines and systems around the demand of Xinchuang. For example, Godson Zhongke and Visteon released "Godson Security Module and SDK" as well as Xinchuang security solution and so on.

To maintain the "buy" rating, we expect the company's operating income to be 29.82pm 37.28 / 4.392 billion in 2022 / 2023 and its parent net profit to be 2.33max 2.88 / 334 million, maintaining the "Buy" rating.

Risk hint: competition aggravates risk; policy strength is not as strong as expected risk; risk of slow layout of new areas.