2021-10-27 Zheshang Securities Co., Ltd. Tian Jiehua and Qiu Shiliang conducted research on Dipu Technology and released the research report “Dipu Technology's 2021 Q3 Report Review Report: Performance Exceeds Expectations and Won Major Breakthroughs in Bidding”. This report gives a buying rating for Dipp Technology. The current stock price is 41.38 yuan.

　　Deep Technology (300768)
　　Report guide
　　The company released its 2021 three-quarter report, which achieved revenue of 742 million yuan, an increase of 33.97% over the previous year; net profit of 205 million yuan, an increase of 31.93% over the previous year; net profit after deducting non-return to the mother's net profit of 194 million yuan, an increase of 36.45% over the previous year.
　　Key points of investment
　　Four consecutive quarters of high revenue growth, impressive net profit and cash flow
　　(1) In the first three quarters of 2021, revenue was 742 million yuan, up 33.97% year on year, of which 2021 Q3 achieved revenue of 309 million yuan, a year-on-year increase of 30.16%. Since 2020 Q4, the company has maintained rapid growth for four consecutive quarters. The revenue growth rates for 2020Q4, 2021Q1, and 2021Q2 are 29.03%, 40.34%, and 34.13%.
　　(2) Gross margin was 74.70%, up 0.97 pct year on year. The cost rate for the period was 49.55%, up 0.79pct year on year. Among them, R&D expenses were 179 million yuan, up 38.95% year on year, and R&D expenses were 24.19%, up 0.87 pct year on year. The company maintained a high level of R&D investment and strengthened technical barriers to high-end products.
　　(3) Net profit of Yuimu was 205 million yuan, up 31.93% year on year. Among them, 2021 Q3 achieved net profit of 99.2092 million yuan, an increase of 42.74% over the previous year, and the net profit growth rate increased 14.62 pcT over Q2.
　　(4) Net cash flow from operating activities was $138 million, up 70.41% year on year.
　　A breakthrough was made in operator collection in 2021, and performance growth can be expected in 2022
　　The company always adheres to the market position of exalting itself and gaining ground in high-value markets. Recently, China Mobile and China Unicom announced the results of the firewall collection tender. The company has made significant progress in the number of winning bids, further verifying the company's core competitiveness in the high-end cybersecurity market and laying the foundation for performance growth in 2022.
　　(1) China Mobile: The company won the bid for the 2021-2022 firewall collection high and medium package.
　　A. From 2021 to 2022, hardware firewall collection bidding results, high-end (1,265 units): Huawei (50%), DIP (30%), Huasan (20%); mid-range (1,088 units): DIP (50%), Huawei (30%), Huasan (20%); low-end (1,732 units): Huawei (50%), Netcom (30%), and Huasan (20%).
　　B. From 2020 to 2021, the results of centralized procurement of hardware firewall products (new part), high-end (2,874 units): Xinhua 3 (70%), Huawei (30%); mid-range (1095 units): Xinhua 3 (70%), Huawei (30%); low end (2898 units): Huawei (50%), Xinhua 3 (30%), Netcom (20%).
　　C. From 2019 to 2020, the results of centralized procurement of hardware firewall products (new part), high-end (623 units): Xinhua 3 (70%), Huawei (30%); mid-range (1622 units): Xinhua 3 (70%), Huawei (30%); low end (2149 units): Xinhua 3 (70%), Huawei (30%).
　　(2) China Unicom: The company won the bid for the 2021 firewall collection of three major standard packages: high, medium, and low
　　2021 centralized firewall procurement bidding results, high-end (900G305 units, 600G778 units): Xinhua 3, Huawei, Dipp Technology; b. Mid-tier (240G346 units, 120G967 units): Xinhua 3, Shanshi Network Technology, Huawei, and Dipu Technology. c. Low-end (40G960, 20G1547): Dipp Technology, Huawei, Netcom, Tianrongxin.
　　Profit forecasting and valuation
　　In the first three quarters of 2021, the company's performance growth exceeded expectations, operators made a breakthrough in winning bids, and future performance growth can be expected. Based on the company's three-quarter report performance and operating conditions, we raised our profit forecast. We expect the company's net profit for 2021-2023 to be 3.69, 5.10 (+0.14), and 7.07 (+0.45) billion yuan, respectively. The corresponding EPS is 0.92, 1.28 (+0.04), and 1.77 (+0.12) yuan, maintaining the “buy” rating.
　　Risk warning
　　Policy implementation falls short of expected risk; project bid winning falls short of expected risk; downstream customer IT spending falls short of expectations; risk of increased market competition.

The stock has been rated by 8 institutions in the last 90 days, with 6 buying ratings and 2 additional ratings; the average institutional target price for the past 90 days is 50.82; according to the Securities Star valuation analysis tool, DIP Technology (300768) has a good company rating of 4 stars, a good price rating of 2 stars, and an overall valuation rating of 3 stars.