Investment Rating - The report assigns a "Buy" rating for the company, marking its first coverage [1][29]. Core Insights - The company is a leading player in the domestic enterprise IT sector, focusing on network security, cloud computing, and IT infrastructure, which has driven a recovery in performance [1][9]. - The company's cloud computing revenue share has increased significantly from 5.45% in 2015 to 46.36% in the first half of 2025, indicating a strong growth trajectory [1][9]. - The company achieved a revenue of 3.009 billion yuan in the first half of 2025, reflecting an 11.16% year-on-year growth, with notable increases in overseas market revenue [2][10]. Summary by Sections Company Overview - The company specializes in enterprise IT, providing products and services in network security, cloud computing, and IoT, with a market share of 11.1% in the domestic network security sector as of 2024 [1][9]. - The company has launched various products since its inception in 2002, including VPNs and firewalls, and has established a strong presence in the cloud computing market [1][9]. Financial Performance - In the first half of 2025, the company reported a gross margin of 62.09%, a year-on-year increase of 0.75 percentage points, with cloud computing business gross margin rising by 3.46 percentage points [2][10]. - The company recorded a net profit attributable to shareholders of -228 million yuan, marking a reduction in losses compared to the previous year [2][10]. Business Segments - The network security segment includes products such as next-generation firewalls and XDR platforms, with the company holding the top market share in China as of Q1 2025 [3][14]. - The cloud computing segment features products like aDesk and EDS, with the company ranked first in the domestic hyper-converged market with a 25.1% market share [5][17]. AI Integration and R&D - The company is actively integrating AI into its network security and cloud computing services, launching several AI-driven products to enhance its offerings [6][20]. - The company maintains a high R&D investment rate, exceeding 25% consistently, with a significant proportion of its workforce dedicated to R&D [7][24]. Profitability Forecast - The company is projected to achieve revenues of 8.559 billion yuan, 9.859 billion yuan, and 11.535 billion yuan for the years 2025, 2026, and 2027, respectively, with corresponding net profits of 240 million yuan, 320 million yuan, and 418 million yuan [8][29].

Summary of the Conference Call for 深信服 Company Overview - 深信服 operates primarily in the network security (60%-70% of revenue) and cloud computing sectors, with expectations for both to contribute equally by 2025-2026 [2][4] - The company has over 20 years of history, initially focusing on network security before expanding into cloud computing in 2015 [4] Key Insights and Arguments - **Network Security Business**: - Focuses on productization rather than operational services, maintaining a high gross margin of around 80% [5] - Products include VPNs, next-generation firewalls, and situational awareness tools, contributing 7%-8% to total revenue [5] - The business has stabilized and is expected to recover growth through AI-enhanced automated operations [6] - **Cloud Computing Development**: - The company leads the market in hyper-converged infrastructure, particularly benefiting from domestic substitution demand as foreign competitors exit [7] - Achieved nearly 20% growth in the first half of 2024, driven by increased demand from small and medium enterprises [7] - **AI Opportunities**: - 深信服 is well-positioned to leverage AI trends, providing comprehensive solutions for enterprises transitioning to AI, including data preparation, model training, and deployment [8] - The company’s strengths in cloud services and data governance allow it to integrate deeply with both foundational cloud and upper-level AI models [12] - **Financial Performance and Projections**: - Signs of recovery were noted in Q2 2025, with revenue growth, profit turnaround, and improved cash flow [13] - Projected cash flow for 2025 is estimated at 1.3-1.5 billion, with a valuation based on a 30x P/E ratio suggesting a safety margin of approximately 40-45 billion [13] - Long-term conservative valuation could reach 100 billion, significantly driven by cloud computing contributions [13] Additional Important Points - **Market Positioning**: - The company primarily serves mid-tier clients, avoiding direct competition with larger players like Alibaba [12] - **Future Growth Potential**: - If revenue growth reaches 10%-20% in 2026, the valuation could exceed 90 billion, with significant contributions from cloud computing [13] - The overall market sentiment towards the AI industry is positive, allowing for early investment without waiting for 2026 performance [13]

Group 1 - The report highlights the top ten convertible bonds for October, emphasizing companies like Zhengfan Technology, Wentai Technology, and Huanxu Electronics, which are positioned for growth in their respective sectors [1][2][57]. - Zhengfan Technology's non-equipment business is a key driver of its continuous performance growth, focusing on high-tech industries such as integrated circuits and biopharmaceuticals [8][9]. - Wentai Technology is recognized as a global leader in automotive semiconductors, with a strong focus on high ASP products that support its future growth [38][39]. Group 2 - Huanxu Electronics provides comprehensive manufacturing services for electronic products, with a strong presence in cloud computing and data centers, indicating robust demand in these sectors [46][48]. - The report suggests that the "反内卷" (anti-involution) trend may create opportunities for midstream sectors like new energy and steel, which could see price recoveries [2][58]. - The report anticipates that the inflow of fixed-income funds into the convertible bond market will continue, supporting valuations and reducing the likelihood of significant declines in October [2][58]. Group 3 - The report identifies specific convertible bonds to watch, including those from companies like TianNeng Heavy Industry, which is a domestic leader in wind power tower manufacturing, and is expected to benefit from increasing demand in the renewable energy sector [42][43]. - The agricultural chemical sector is highlighted through Hebang Biological, which is experiencing improved profitability due to favorable supply-demand dynamics in glyphosate products [24][27]. - The report also notes that companies like Youfa Group are poised to benefit from the new round of supply-side reforms, enhancing their national and international market presence [19][20].

Core Viewpoint - The company emphasizes its focus on network security as a core business, offering various products to enhance security across different sectors [1] Group 1: Network Security Products - The main products in the company's network security portfolio include next-generation firewalls, security gateways, and big data security platforms [1] - The company aims to create a "network + security" integrated security advantage, significantly improving overall network security detection and protection capabilities [1] Group 2: Clientele and Market Reach - The company's network security products have been implemented to build security barriers for over ten thousand industry clients, including government, finance, and education sectors [1]

Core Insights - The article emphasizes the importance of information security level protection assessment as a foundational requirement for corporate compliance in the context of digital transformation [1][4] - It discusses optimizing the assessment fee structure and device configuration to enhance corporate security [1][4] Group 1: Device Configuration - A typical enterprise-level security device configuration should include boundary protection devices, access control systems, data security components, and monitoring response systems [4] - Boundary protection devices account for over 40% of the security budget, highlighting the principle of layered protection in security construction [5] Group 2: Assessment Fee Structure - The assessment fee varies based on system importance, network complexity, and the completeness of existing security measures [6] - For secondary systems, the basic assessment service ranges from 30,000 to 60,000 yuan, while for tertiary systems, it ranges from 15,000 to 30,000 yuan [6] Group 3: Cost Optimization Strategies - Companies are advised to implement a phased strategy, prioritize essential equipment deployment, and consider resource reuse to optimize cost-effectiveness [7] - A financial institution reduced its annual compliance costs by approximately 35% through effective planning of the assessment scope after adopting a hybrid cloud architecture [7] Group 4: Common Issues and Solutions - Common issues faced during the assessment process include extended assessment periods and unclear rectification standards, which can be mitigated by early preparation and clear communication with assessment agencies [8] - An internet company improved its operational efficiency by deploying an automated log management system, addressing compliance requirements while enhancing operational value [8] Group 5: Continuous Improvement Mechanism - Establishing a long-term maintenance mechanism for security assessments should include quarterly security configuration checks and semi-annual vulnerability scans [9][12] - Integrating security requirements into daily operations has proven effective, as demonstrated by an energy group that increased its re-assessment pass rate from 68% to 92% through process management [10]

Core Viewpoint - The credit rating agency has downgraded the long-term credit rating of the company to A and the rating of its convertible bonds to A, with a negative outlook due to ongoing financial losses and high research and development expenditures [1][4][6]. Company Overview - The company, established in July 2011, focuses on boundary security, cloud security, and other security services, with a registered capital of 135 million yuan [11]. - As of March 2025, the company has a total asset of 1.892 billion yuan and equity of 848 million yuan, with a total revenue of 158 million yuan in Q1 2025 [11][12]. Financial Performance - In 2024, the company achieved a total revenue of 997 million yuan, reflecting a year-on-year growth of 10.6% [6][9]. - The company reported a total loss of 144 million yuan in 2024, with a continuous decline in cash flow and increasing accounts receivable, which grew by 21.28% to 962 million yuan [7][9][10]. - The company’s operating cash flow was negative at -90 million yuan in 2024, indicating a lack of effective coverage for short-term debts [9][10]. Market Position - The company ranks fourth in the Unified Threat Management (UTM) market in China and second in the internet industry according to IDC data [6][19]. - The company has a high customer concentration, with the top five customers accounting for 79.82% of total revenue in 2024, which poses a risk of overdue payments [9][10]. Research and Development - The company maintains a strong capability in independent design and development of software and hardware, with R&D expenses constituting approximately 36.1% of total revenue in 2024 [20]. - The company has successfully tested its ASIC security chip, which is expected to enhance its product offerings [20]. Industry Analysis - The global cybersecurity market is projected to reach 216.8 billion USD in 2024, with a year-on-year growth of 12.3% [14]. - The domestic cybersecurity hardware market is expected to decline by 6.5% in 2024, while the software market is anticipated to grow by 5.1% [14][15]. - The industry is undergoing a transition from compliance-driven to value-driven, with increasing demand for data security solutions [18]. Organizational Changes - The company has undergone significant changes in its management team, with the chairman and several senior executives leaving and new appointments made in February 2025 [21]. - The company is optimizing its organizational structure and marketing system, which has led to improved operational efficiency [21].