Key points of investment
Basic market: The security business has core competitiveness. Looking at the rebound in the advertising business in 23 years, the company proposed a strategy centered on the security business when it announced the complete transformation of the digital security company in 2022. The company has been in the security business for over 17 years, and is the only cybersecurity company that has mastered the security situation of the entire network. Judging from the To B business, the company's security brain uses security big data, a security knowledge base, and a team of security experts as the center to gather security big data from a full perspective, full scope, and full time, to give micro, small and medium-sized enterprises digital security capabilities through collaborative processing capabilities. Judging from the To-C business, many of the company's products have a high market share.
Looking ahead to 2023, advertising-related businesses are expected to see a rebound. The advertising business is highly correlated with macroeconomics. With the end of epidemic control, GDP growth is expected to reach 5% in 2023, and the advertising business will benefit from this.
At the same time, based on the relaxation of game versions and related policies, the game business, especially mobile games, is expected to generate new revenue growth. Furthermore, the company's smart hardware business continues to develop steadily, and the company streamlined SKUs in 2021 to reach the current small SKU product matrix with the theme of security. The company is currently focusing on building its own channels, and may be able to obtain higher gross profit margins.
Current focus: ChatGPT has brought revolutionary changes to the search industry. The monetization of corporate resource endowments will stir up the overall competitive pattern of the search industry and bring about major changes. Algorithms like ChatGPT require accumulation of core algorithms, data, and capital (hardware). We have seen that the company has at least accumulated strong data and hardware over the past few years. The resource endowment meets the basic conditions for applying algorithms similar to ChatGPT in search engines. At the same time, although the market share of the company's 360 search is not high, it has been in operation for over 10 years. Referring to Bing's model, the company can also introduce GPT algorithms into this search engine in the future. Therefore, we believe that the company is expected to efficiently enter the ChatGPT circuit from search engines, and may stir up a competitive pattern in the search engine market that has not changed for a long time in the future, thereby adding significant revenue growth to the company.
Profit forecasting and valuation
We are optimistic that the company will enter the ChatGPT circuit through a search engine and receive significant revenue growth as a result. At the same time, the company's security business and game business are basically stable, and advertising-related business is expected to rebound again in 2023. In summary, we expect the company's revenue for 22-24 to be 96/115/139 billion yuan respectively; the net profit of the mother is -24.3/492/1.05 billion yuan respectively. The current stock price corresponding to the 24-25 P/E is 244/114 times respectively, covering the “buy” rating for the first time.
Risk warning
After integrating GPT technology, search engine usage results fell short of expectations, and advertising revenue fell short of expectations due to a slowdown in macroeconomic growth, etc.