Incident: On April 4, the company released its 2022 annual report. It achieved revenue of 491 million yuan for the full year of 2022, a year-on-year decrease of 39.82%, and achieved net profit of -34 million yuan, a decrease of 123% over the previous year; in the single quarter of 202Q4, it achieved revenue of 200 million yuan, a decrease of 52.42% over the previous year, and achieved net profit of 31 million yuan, a decrease of 73.40% over the previous year. By business, the company's cybersecurity products business achieved revenue of 343 million yuan, a year-on-year decrease of 27.04%; the company's cybersecurity service business achieved revenue of 125 million yuan, a decrease of 29.79% over the same period last year; and the company's cybersecurity ecosystem business achieved revenue of 23 million yuan, a decrease of 86.17% over the previous year.

The main reason for the decline in the company's performance in 2022 was due to macroeconomic effects, which limited the company's business development.

The company's product sales have obvious seasonal characteristics. Revenue often increased dramatically in the fourth quarter of every year. However, from January to November 2022, the company's office space usage and personnel travel in major business areas such as Jilin Province, Shanghai City, Beijing, etc., were affected. In December 2022, there was a serious shortage of on-the-job personnel at the company's main business sites, and many aspects of bidding, procurement, delivery and transportation, installation and maintenance, inspection and repayment for the issuer and related customers were seriously affected. In the short term, there was even a business stagnation. In the short term, there was even a business stagnation for the company in December and then The 2022 full-year results had a big impact.

The company's three main businesses facilitate technological breakthroughs, market expansion and ecological cooperation. In terms of cybersecurity products, the company closely followed the national cybersecurity policy, increased related investment, broke through the core technical problems of anti-quantum cryptographic algorithms, private computing, and variable parameter full-dimensional spatial equivalence, and gradually covered all aspects of information infrastructure. In terms of network security services, the company has continuously strengthened cooperation with government departments, industry guidance units, etc., built a Zhengyuan Internet service platform, and actively expanded the market in the health, medical, large enterprises and other industries. In terms of the network security ecosystem, the company takes technology as the core, combines user security needs and business conditions, and provides customers with security through customized overall security solutions based on the company's core products and third-party ecosystem partner products.

The market side, technology side, and R&D side are working hard to consolidate advantageous businesses and expand cryptographic products and services.

On the market side, the company continues to consolidate its advantageous areas, actively promote channelized transformation, lay out new fields and new business scenarios, and further expand the space for future performance growth; on the technical side, improve the compatibility and adaptability of existing cryptographic products, enhance the construction of a new digital security infrastructure with cryptography as the core, form a data security brain product system and a ubiquitous identity trust system, optimize innovative security solutions, and enhance digital security service capabilities; on the R&D side, achieve technological breakthroughs in anti-quantum cryptographic algorithms, design a digital security central system, and focus on research on data security products for small and medium-sized enterprises.

Investment proposal: The company launched a new digital security infrastructure system that organically combines digital security capability infrastructure, digital security intelligence hubs, and digital security operating systems to form a new digital security protection system that is intelligent, operable, cloud-native, secure commercialization, and business security, and comprehensively protects the digital transformation of customers in various industries. We expect the company to achieve revenue of 1,380, 18.50, and 2,498 billion yuan in 2023-2025, and net profit of 242, 317, and 481 million yuan respectively. The price-earnings ratios corresponding to the current stock price are 29X, 23X, and 15X respectively, maintaining the “recommended” rating.

Risk warning: industry policy risks, technological innovation and product upgrade risks, seasonal product sales risks.