\u3000\u3 China Vanke Co.Ltd(000002) 212 Topsec Technologies Group Inc(002212) )
Key investment points:
The company announced the financial reports of 2021 and 2022q1: the company’s revenue in 2021 was 3.352 billion yuan, a year-on-year decrease of 41.24%; The net profit attributable to the parent company was 230 million yuan, a year-on-year decrease of 42.52%; Deduct non net profit of 153 million yuan, a year-on-year decrease of 65.57%.
In 2022q1, the company’s revenue was 378 million yuan, a year-on-year increase of 42.80%; The net profit was -65 million, a year-on-year increase of 32.14%; Deduct non net profit of -71 million yuan, with a year-on-year increase of 27.04%.
Since the company stripped off its wire and cable business in 2020, it is difficult to observe the actual growth of the company’s business in 2021 from the financial report data. Instead, the network security business should be taken as an effective measurement of performance. In terms of network security business, the actual revenue of the company in 2021 increased by 18.33%, the net profit attributable to the parent decreased by 52.59%, and the net profit deducted from non net profit decreased by 59.78%. Since the same day engaged in system integration business was also stripped off in 2021 (included in the network security business), if the impact of the same day is excluded, the company’s network security business revenue growth rate is 36.42%, and the two-year revenue growth rate is 83.21%. The revenue in 2021 still achieved a good growth rate. Compared with peers, the company also faced high-speed revenue growth in 2021, but the investment was high and the profit was lower than expected.
In terms of the reasons for the decline in profits, the main factors include:
(1) shortage of chips and raw materials: in 2021, the raw materials of the company’s network security business increased by 48.61%, far exceeding the growth rate of 18.33% of revenue. The impact of rising raw material prices on gross profit margin reached 3.5 percentage points, mainly reflected in Q4, which exceeded the market expectation. However, considering the epidemic situation and the global situation, we believe that it is difficult to completely get rid of the shortage of raw materials in 2022, and the related cost rising factors are expected to be greatly alleviated after the company actively adjusts the industrial chain and price.
(2) the change of income structure has brought about the decline of overall gross profit. The proportion of low gross profit margin information innovation business and cloud computing business in revenue increased, resulting in a decline of 2.4 percentage points in the company’s gross profit margin.
(3) the increase of the company’s investment in R & D expenses and sales expenses: in 2021, the company’s network security business sales expenses, management expenses and R & D expenses increased by 33.56%, 14.94% and 47.35% respectively year-on-year. Among them, the growth rate of R & D expenses has exceeded the growth rate of network security business after excluding Tongtian technology by 36.42%, mainly because the company added more R & D personnel in 2020 (growth rate of 48%), and the growth lag of relevant expenses is reflected in 2021. The company’s R & D personnel increased by 11% in 2021, and the pressure on the growth of R & D expenses in 2022 is expected to be relieved. The company aims to control the growth of R & D expenses within 25%; In terms of sales expenses, 2021 is mainly used for deep cultivation of the industry, land market sinking and channel expansion. Compared with peers, the proportion of the company’s sales is relatively low. With the maturity of product research and development, it is still necessary to continuously increase the subsequent investment in the sales end. Therefore, the company plans to increase the sales expenses by 35% in 2022.
By business:
(1) in 2021, the fastest growth of the company was cloud computing and cloud security business, with a year-on-year increase of 53.38%, of which cloud computing and security cloud services increased by 244.02% and 36.21% respectively. Due to the low gross profit margin of cloud computing business and its rapid growth, the overall gross profit margin of cloud computing and cloud security business decreased by 21.48 percentage points.
(2) the revenue of the company’s basic safety products was 2.252 billion yuan, an increase of 14.63% year-on-year. As the business was greatly affected by the stripping of science and technology on the same day, if the same day year-on-year caliber was excluded, the business is expected to grow by 42% and achieved brilliant results. Among them, Xinchuang business and data security business increased by 10 times and 193% respectively, forming a strong pulling effect on the basic security business. However, due to the rise of raw materials and the large proportion of integrated business of Xinchuang, the gross profit margin of basic security products decreased by 6.22 percentage points compared with the previous year.
(3) the revenue of big data and situational awareness business increased by 20.77% year-on-year. As the business is a labor-intensive business, the profit margin is low and it is difficult to grow on a large scale, the company selectively goes deep into large industries, and the revenue scale is controlled.
In terms of subregions, the network security business in North China and central China decreased by 11.72% and 6.46% respectively, but the gross profit margin bucked the trend and increased by 5.77 and 19.06 percentage points, or was affected by the business stripping on the same day. Other regions have achieved a high growth rate of more than 30%, but the gross profit margin has declined in a large proportion (except that the gross profit margin of the northwest region is low in 2020 and increased by 6.79 percentage points in 2021, but it is still the region with the lowest gross profit margin).
By industry:
Government institutions: 1.9 billion yuan, an increase of 1.6% year-on-year. Driven by the government’s information innovation business, the company’s revenue from the government industry grew the highest in 2021, reaching 91.26%; Although the political, legal and educational industries were affected by macro factors, they still increased by 45.69% and 61.60%; Health increased by 69% year-on-year, an increase of 26 percentage points over the previous year, with a high growth rate for two consecutive years.
(2) state owned enterprises: the revenue was 737 million yuan, with a year-on-year increase of 11.49%. They achieved high growth rates of 59.63% and 69.9% in finance and operators respectively, which demonstrated the company’s product strength.
(3) business and others: the income was 652 million, a year-on-year increase of 9.55%, down 8.08 percentage points from the previous year.
The company’s R & D investment in 2021 totaled 1.027 billion yuan, with a year-on-year increase of 34.4%, and the R & D intensity was 30.66%, which was at a high level among peers. In 2021, the company’s R & D capitalization ratio increased from 25.89% of the previous year to 29.00%. At present, the investment period in cloud computing, information creation security, data security, industrial Internet Security and Internet of vehicles security has basically ended.
In 2022, the company set a revenue growth target of 30%, and the annual performance is expected. From the perspective of orders, the company’s orders increased by 48% in 2021, basically the same as that of the previous year in 2022q1, and the monthly orders increased slightly by 4. On April 26, the company was in the process of prudently handling the overdue situation of notes receivable that had fulfilled the contract. It announced that it had revised the previous performance express and reduced the annual income by 190 million yuan. At present, all the overdue funds have been recovered and have not been included in the income of 2022q1, which also means that the high growth quality of Q1 performance is very high. At the same time, the gross profit margin of Q1 company is 67.64%, an increase of 7.68 percentage points over the previous year. At the same time, the growth rate of the three major expenses (sales expenses, management expenses and R & D expenses) is 24%, which has dropped significantly compared with the growth rate of 35% in 2021, which also means that the net profit of the company is expected to increase significantly on the basis of high income growth in the whole year.
Maintain the investment rating of “buy” of the company. As an old network security manufacturer, the company has been a leader in the industry’s largest single product firewall field for many years. At the same time, it is also actively working in emerging business fields. It is expected to maintain high growth in 2022, and the overall profitability is expected to return to the historical normal level. It is estimated that the company’s EPS in 22-24 years will be 0.39 yuan, 0.59 yuan and 0.82 yuan respectively. Calculated according to the closing price of 9.48 yuan on May 13, the corresponding PE will be 24.55 times, 16.19 times and 11.59 times.
Risk tip: the competition in the network security industry is intensifying; The aggravation of the epidemic situation affects the implementation of the project; Risk of shareholder reduction.
