Key points of investment

The company is a leading Internet and security service provider in China. It operates around the “Internet+Security” two-wheel drive business model, forming the three major segments of security business, Internet business, and smart hardware business, providing a full range of services for B-side, C-side and IoT terminals. Empowered by AI technology, the company is expected to further reduce costs and increase efficiency and iterate on the existing business ecosystem.

Build a safe foundation and monetize traffic

The company is a leading internet and security service provider in China. Since its establishment in 2005, the company has successively launched security products such as 360 Security Guard, 360 Mobile Security, and 360 Secure Browser, and quickly obtained traffic through the concept of “free Internet security”. Traffic monetization was carried out with security capabilities as the core, and exceeded 10 billion dollars in revenue in 2017.

Currently, the company's development revolves around the “Internet+Security” two-wheel drive business model, forming three major segments: security business, Internet business, and smart hardware business, providing a full range of services for B-side, C-side, and IoT terminals.

Empowering government enterprises, second growth curve after traffic dividends

We believe that with the growth of PC and mobile Internet traffic nearing saturation, the Internet advertising industry has entered a period of maturity. This is reflected in the fact that the number of competitors is nearing saturation, and the growth rate of the industry is gradually slowing down. In the context of the decline in C-side traffic dividends, the company focused on security capabilities, deployed on the government and enterprise side, and officially changed its name to “360 Digital Security Group” in September 2022, making every effort to create a second growth curve for the B-side. Looking ahead, we predict that the share of the company's government and enterprise security business in the company's revenue will continue to rise, creating the company's second growth curve in the digital economy era, and continuing to increase profits.

Empowered by AI, the company has multiple business implementation scenarios

The company's deep search engine, mobile office, gaming and other businesses provide rich scenario support for the application of AI technology. At the same time, the company has been deploying AI for many years and has accumulated deep technology. It is expected that AI technology will penetrate into the company's various business scenarios in the future, injecting new momentum into the company's development.

Profit forecasting and valuation

We predict that the company is expected to achieve operating income of 94.9/112.67/13.260 billion yuan in 2022-2024, net profit of 24.8/679/1,365 billion yuan, and the current price corresponding to the company's 23/24 PE is about 200/99 times. Considering the existing advantages of the company's Internet products and services, we are optimistic about the company's continued layout in the field of government and enterprise security and forward-looking investment in the AI field to maintain the “buy” rating.

Risk warning

Revenue related to the Internet business continues to decline; the advancement of government and enterprise security business falls short of expectations; the implementation of AI technology falls short of expectations; the risk of changes in the macroeconomic environment; and the risk of short-term stock price fluctuations.