Core Investment Thesis
The company is advancing toward AI security, with the industry expected to bottom out in 2025. The company's foundational products have primarily accumulated attack-defense and data capabilities, while its flagship situational awareness platform has mastered global information, visualization, and big data analytics, enabling the company to evolve toward comprehensive big data security capabilities. AI represents a further advancement beyond traditional big data capabilities, and the company's existing platform capabilities can achieve seamless upgrades, reshaping security through AI. During and after the pandemic era, industry demand contraction led to losses at most companies. From an industry headcount perspective, leading security vendors all reached peak employee numbers in 2022, with continuous declines in 2023-2024. Combined with expectations for continued workforce reductions in 2025 and the shift toward gross margin-based performance metrics on the revenue side, most companies are expected to achieve profitability turnaround in 2025, suggesting the industry may bottom out in 2025.
Traditional business remains leading, AI security already showing initial value. According to the latest IDC data, the company's foundational products including database audit, WAF, and log audit continue to maintain top-three market share positions. Among the company's security platforms, situational awareness remains firmly positioned at the industry forefront, with the data security platform holding a 13.7% market share, ranking first. The company's managed security services hold an 11.1% market share, ranking second, while maintaining leading positions across on-site, remote, and cloud-managed services. In AI security, AiSort based on the Hengnao platform has dramatically improved data classification and grading efficiency by 30 times, achieved a 200% leap in alert analysis efficiency, and enhanced security operations personnel efficiency by at least 250%. In 2024, the company achieved over 17 million yuan in pure AI product revenue and 62 million yuan in indirect AI product revenue (revenue generated by AI-enabled products), totaling over 79 million yuan in AI-related revenue.
The company's accumulation in data elements positions it well for new opportunities in the RWA era. The company has collaborated with Zhejiang Big Data Exchange Center since 2020 to jointly build a data trading platform, conducting data development, circulation, and trading in a secure and trustworthy environment. The company has made excellent progress and accumulation in data elements, data assetization, and value operations, with related data assets and operational rights potentially subject to future RWA transformation.
Company expenses declining significantly, positive scissors gap expected to emerge gradually. In 2024, the company posted a loss of 198 million yuan, narrowing by 45%, primarily due to enhanced cost control measures that reduced expenses by 319 million yuan. Looking at Q1 2025, losses continued to narrow by 44% year-over-year, with expenses maintaining their downward trend. The company has achieved significant improvements in per-employee efficiency, with workforce numbers declining 7% in 2024, down 17% from the 2022 peak. In terms of revenue generation, the company has promoted all regional offices to assume "ownership" responsibilities, becoming independent accounting business units, with per-employee revenue reaching a recent high of 566,800 yuan. A positive scissors gap is expected to emerge in 2025.
Risk Warnings: AI industry development falling short of expectations; continued deterioration of competitive landscape; tightening of downstream IT spending.
Investment Recommendation: Lowering profit forecasts while maintaining "Outperform" rating. Due to overall weak demand in the IT industry in 2024, we are revising down our profit forecasts to expect net profit attributable to shareholders of 42/117/232 million yuan for 2025-2027 (previously forecasted 101/174 million yuan for 2025-2026), corresponding to current P/E ratios of 139/50/25 times. Considering that both the company and industry are expected to bottom out and recover this year, and the company's potential active positioning in AI and RWA fields may bring new growth opportunities, we maintain our "Outperform" rating.
Comments