\u3000\u30 Guangdong Tengen Industrial Group Co.Ltd(003003) 69 Nsfocus Technologies Group Co.Ltd(300369) )
Matters:
The company released the first quarter report of 2022. The report shows that in the first quarter, the company achieved an operating revenue of 327 million yuan, a year-on-year increase of 34.64%; The net loss was 115 million yuan, with a net loss of 452735 million yuan in the same period of last year, expanding compared with the same period of last year.
Ping An View:
The company’s revenue grew rapidly, but the loss expanded due to the decline of gross profit margin and the increase of period expense ratio. In the first quarter of 2022, the company’s revenue increased by 34.64%, and the growth rate decreased by 12.40 percentage points compared with the same period of the previous year. In the first quarter, the company’s direct selling and channel mode operated more smoothly. The continuous R & D investment led to the continuous improvement of the product system, and the network security products and services maintained rapid growth. From the perspective of products: on the one hand, the company’s traditional advantageous fields, such as network intrusion prevention and detection, vulnerability scanning and configuration verification, anti DDoS attack and traffic cleaning, website security detection and defense, are continuously creating revenue for the company; On the other hand, new products and services continue to be launched in the fields of big data security analysis, industrial control system security, data leakage prevention, attack and defense competition and information security training. However, the market competition is still fierce, and the gross profit margin of the company fell to 63.32% compared with the previous year, down 2.60 percentage points compared with the same period of the previous year; During the period, the expense rate was 106.19%, an increase of 10.72 percentage points over the previous year. Due to the growth of the company’s investment in sales and R & D personnel, the sales expense rate increased by 5.11 percentage points, and the R & D expense rate increased by 7.35 percentage points over the previous year. Under the comprehensive influence of the above factors, the company’s loss expanded compared with the same period of last year.
The company’s “direct selling + channel” strategy is progressing smoothly, and the channel system has entered a virtuous circle. In 2021, nearly 4000 channels were expanded, and more than 30 partners entered ten million clubs. The commercial channel has initially tested the water and laid out and covered the commercial market with the joint efforts of more than 40 commercial partners. The era of the company’s channel strategy 1.0 has ended and basically met the expectations. The internal management and operation mechanism has been formed, with horizontal and vertical combination, top-down connection, open cooperation in the whole industry and all customers, and the cooperation between the channel and the company is more simple and efficient. In 2022, we began to enter the era of channel strategy 2.0, the reform entered the deep-water area, led the mainstream channel cooperation through the optimal channel policy, and strictly controlled the multi-level channel and special price management. In 2021, the company’s channel revenue was 1.772 billion yuan, with a year-on-year increase of 35.49%. The proportion of channel revenue in 2021 revenue reached 67.92%, an increase of 2.86 percentage points over the same period of last year. The channel transformation that the company continues to explore can expand the reach of customers through effective cooperation mode. While increasing revenue, it also changes the traditional “seasonal” collection mode, which is hopeful to improve the rhythm of cash flow recovery in the long run.
The network security market will achieve steady growth and the company will continue to benefit. On the one hand, the national attention to network security continues to increase, especially in 2021, the data security law, network security review and other relevant regulatory regulations and systems were intensively introduced, and the demand from the compliance side increased significantly. On the other hand, the endogenous demand from actual attack and defense is also increasing, and the willingness of government and enterprise network security investment is improving. According to the latest IDC report, China’s network security related expenditure is expected to reach US $10.26 billion in 2021. It is estimated that by 2025, China’s network security expenditure will reach US $21.46 billion. In the five-year forecast period from 2021 to 2025, China’s network security related expenditure will grow at a compound annual growth rate of 20.5%. From the perspective of industry end users, users in telecommunications, local governments and banking industry spend the most on network security; By 2025, the total expenditure scale of the three will exceed US $9.41 billion. Among them, the expenditure of local governments and banks will grow steadily, and the five-year compound growth rate is expected to exceed 21.0%. The company has strong competitive advantages in the telecommunications and financial security markets, and there is still much room for expansion in the follow-up.
Investment suggestion: the company has advanced technology and strong R & D ability in the network security industry. With the gradual emergence of synergy with the shareholders of central enterprises, the competitiveness of the company will be further improved. With the rapid growth of the company’s strategic transformation, the company will continue to promote the momentum of channel growth. Combined with the company’s recently released annual report of 2021 and the first quarter report of 2022, we adjusted the company’s profit forecast. It is estimated that the company’s EPS from 2022 to 2024 will be 0.51 yuan (the former value is 0.63 yuan), 0.66 yuan (the former value is 0.81 yuan) and 0.83 yuan (New), corresponding to 17.0x, 13.2x and 10.4x PE on April 28. We continue to be optimistic about the company’s continuous expansion in the network security track and maintain the “recommended” rating.
Risk tips: (1) the risk of intensified competition in the network security market. In recent years, the policy of network security industry has been favorable, the market scale has grown clearly, a large number of new entrants have been attracted, and the market competition has intensified. If it is difficult for the company to keep ahead in terms of products and market, it may be marginalized by the market. (2) Some business growth may not be as expected. China’s security service business model has always been difficult to implement. Although the company’s business is relatively competitive, there is uncertainty in market development. The industrial control and cloud security markets are growing rapidly, but the market is still in the state of cultivation and may fluctuate greatly. There is still great uncertainty about whether it can support the performance in the short term. (3) The company’s R & D may not be as expected. Among the network security enterprises in the same industry, the scale of personnel and capital investment of the company is at the leading level. However, in recent years, due to the intensification of competition in the network security market, the talent competition among enterprises is also becoming white hot. If the company cannot maintain a stable core personnel team, the research and development of key technologies and the development of emerging markets will face great pressure.
