Xin'an Century 1H24's revenue was +4.4% year over year, which is basically in line with market expectations. The company announced 1H24 results: revenue increased 4.4% year over year to 0.186 billion yuan; net loss to mother increased 0.006 billion yuan to 0.033 billion yuan year over year; net loss after deducting non-net loss increased 0.007 billion yuan to 0.035 billion yuan year over year. Single quarter 2: Revenue decreased 8.9% year over year to 0.115 billion yuan; net profit to mother changed from positive to -0.004 billion yuan year on year; net profit after deduction changed from positive to -0.004 billion yuan year on year, which is basically in line with market expectations.

Development trends

Revenue on the government and enterprise side is growing rapidly. Based on cryptographic technology and cybersecurity technology, the company achieved steady revenue growth in the first half of the year. Among them, revenue from the government industry was +44.2% to 0.057 billion yuan, mainly catalyzed by special industries and e-government demand; on the enterprise side, along with the increase in procurement demand for information technology software, medical care, operators, etc., 1H24 revenue increased 22.9% year over year to 0.046 billion yuan; 1H24 financial industry declined 18.2% year on year to 0.082 billion yuan, mainly due to the slow pace of procurement.

Gross margin improved year over year. At the gross margin level, 1H24's comprehensive gross margin was +1.9ppt to 71.0% year over year, 2Q24 gross margin was +1.7ppt to 69.1% year over year, and -5.2ppt. The company optimized personnel in the first half of the year, but due to factors such as compensation and technical team replacement reserves that have not yet been fully absorbed, the total three fees increased 6.9% year-on-year to 0.18 billion yuan. The company's net loss increased year-on-year due to a year-on-year decrease of about 4.8 million yuan in VAT rebates on 1H24, compounded by short-term pressure on the cost side. 1H24's net operating cash outflow increased by 0.015 billion yuan to 0.07 billion yuan year-on-year.

Product innovation is gradually being implemented. In the field of commercial cryptography, the company focuses on post-quantum cryptography technology to promote the implementation of commercial cryptography technology in various application scenarios (industrial Internet, drones, etc.); in the field of network security, the company enhances product performance in response to the characteristics of domestic architectures; in the field of data security, the company has added a “1+2+N” data security governance capability framework. 1H24, the company continues to promote localization and adaptation, supports various domestic hardware platforms, operating systems, databases and middleware, and has obtained 24 mutual product certifications.

Profit forecasting and valuation

We are optimistic about the long-term growth momentum brought about by the company's product innovation and maintain the industry's rating. Considering the uncertain pace of revenue recognition and short-term cost pressure, we cut 2024 revenue by 41% to 0.607 billion yuan, and net profit by 74% to 0.07 billion yuan. Introduced 2025 revenue/net profit of 0.676/0.1 billion yuan.

We lowered our target price by 72% to 8.8 yuan (based on 40/27x 2024/25e P/E). The current stock price corresponds to 30/21x 2024/25e P/E, with 34% upside.

risks

The implementation of the policy fell short of expectations, and the expansion of new products fell short of expectations.