Incidents:
The first three quarters of 2020 achieved revenue of 980 million, a year-on-year decrease of 6.09%. Net profit of the mother was -94 million and non-net profit was 95 million. Losses increased by 47.52% and 41.12%, respectively, compared to Q2.
Key points of investment
Revenue accelerated quarterly, and product gross margin continued to improve: Q3 achieved revenue of 547 million yuan in the single quarter, up 26.62% year on year, and a sharp improvement over the previous month (Q1 and Q2 were -64.22% and -16.22%, respectively); Guimu's net profit was 39 million yuan, up 104.73% year on year; after deducting non-net profit of 38 million yuan, up 103.43% year on year. In terms of gross margin, Q1, Q2, and Q3 were 32.14%, 34.57%, and 36.91% respectively, and continued to improve year-on-year. In terms of expenses, sales expenses increased slightly, and R&D expenses increased by 37.18% over the same period last year. The main reason was that the company increased research and development efforts for key products. Inventory increased by 52.77% compared to the beginning of the year, mainly due to an increase in semi-finished products and inventory products.
“Regulations on the Administration of Commercial Passwords (Draft for Comments)” Released: In August 2020, the National Cryptographic Administration issued the “Regulations on the Administration of Commercial Passwords (Revised Draft for Comments)”, which are based on the “Cryptographic Law”
Formulated, dedicated to commercial password management and promoting the development of the commercial cryptographic business, it also determined the responsibilities of administrative departments and management departments responsible for confidential business. At the same time, implement the provisions of the Cryptographic Law to promote the construction of a commercial password testing and certification system, and encourage commercial cryptographic practitioners to voluntarily accept commercial password testing and certification. According to the “Cryptographic Law” and “Electronic Signature Law”, electronic authentication services, requirements for the use of passwords and usage regulations have been further clarified; as well as requirements for electronic authentication services such as electronic documents, electronic seals, and electronic certificates in government activities. Continued introduction of policy-side laws and regulations will promote the development of the cryptographic industry and drive demand for commercial cryptographic products and confidential information system products such as cryptographic machines, firewalls, SSL VPN secure access gateways, IPsecVPN, network security audits, data leakage prevention, and document encryption systems. As a segment leader in the cryptographic industry, the company is expected to continue to benefit.
Guardian Orange News was selected into China Telecom's National Information Technology Product Library: In September 2020, Guardian Orange News was added to the National Information Technology Product Library as the only software product. In the future, it will cooperate with the implementation and improvement of China Telecom's international business cloud platform. China Telecom's international business cloud platform is an important tool for building an international telecommunications management system. Under the leadership of the country's “Belt and Road” initiative, more and more central enterprises are going abroad to invest and build. As an example, Guardian Orange News uses “security”
+ A platform-based product focusing on “communication” + “collaboration” can provide seven major security guarantees and a complete set of password support systems, comprehensively enhance the security and reliability of cross-border communication and document transmission, and provide a strong guarantee for the safe, efficient and orderly development of cross-regional and even multinational business for government and enterprise users.
Profit forecast and investment rating: Net profit for 2020-2022 is expected to be 2.08/357/497 million yuan respectively, and EPS is 0.25/0.43/0.59 yuan respectively, corresponding to 76/44/32 times PE. With the main crypto business as the core, we will continue to strengthen the promotion of core business for the party, government, and key industries. If we innovate and release volume, the company will enter a performance release period and maintain its “buy” rating.
Risk warning: The information security market fell short of expectations, and the construction of a secure cloud platform fell short of expectations.