Jiayuan has developed the wireless communication security business relying on its self-developed cybersecurity coding technology. Its communication data transmission products are used in high-end defense scenarios such as satellite/aircraft data transmission. Looking ahead, we expect Jiayuan to benefit from growing demand for the security protection of aerospace network communications on the back of its advantages in core technologies with high entry barriers, classified information-related qualifications, flexible incentives thanks to its private ownership and aggressive R&D input. We initiate coverage with a "BUY" rating and a target price of Rmb98.
Taking vertical informatization as the starting point, Jiayuan has forayed into the wireless communication security business. Jiayuan was founded in 1994 and launched R&D on the project of "the safety management and risk warning technology platform" in 2016. Later in 2019, Jiayuan was awarded entrusted R&D tasks through bidding and entered the network & information security industry. In recent years, Jiayuan has maintained rapid revenue growth and delivered a higher profit margin, benefiting from the growth of the network & information security business. According to its prospectus, Jiayuan expects to achieve revenue of Rmb280mn-320mn in 2021, a YoY increase of 46.94%-67.93%, and attributable net profit of Rmb85mn-95mn, a YoY increase of 61.43%-80.43%.
The military cybersecurity industry boasts broad prospects. China's network & information security industry has faced a favorable policy environment in recent years. In terms of the national defense and military industry, information security systems are one of the important components of military informatization. With US data as a reference, China's Command, Control, Communications, Computers (C4), Intelligence, Surveillance and Reconnaissance (ISR) market (C4ISR) reached around Rmb140bn in 2020, of which the core areas may maintain a growth rate of more than 20% ahead.
Cybersecurity: A wireless communication security leader is in the making with an in-depth presence in aerospace cybersecurity. With self-developed network security coding technology as the core, Jiayuan has developed products including chips, boards, and devices. Currently, its products are used in communication data transmission scenarios. Compared with the US and Russia, China's military satellites and aircraft still have vast space for development, and demand for data transmission products will remain strong in the future. We foresee a total addressable market (TAM) of Rmb6.9bn-13.8bn/0.8bn-3.2bn for satellite/military aircraft data transmission products during the 14th Five-Year Plan (FYP) period (2021-25)。 Jiayuan has classified information-related qualifications and masters core technologies with high entry barriers. As a result, Jiayuan is well-positioned to benefit from extensive industry demand. At the same time, the potential application scenarios of relevant technologies can be expanded to ships, vehicles, space stations, etc., which will create further headroom for Jiayuan's future development.
Informatization: Expanding into medical and health data security Jiayuan's medical and health informatization business centers on hospital data interconnectivity by developing data warehouses and other products and helping promote the construction of smart hospitals. Jiayuan is upgrading the medical and health informatization data platform, which will improve its data collection, analysis and processing capabilities. Jiayuan may gradually expand the national market by serving more military hospitals.
Potential risks The product sales of the network & information security business miss expectations; the progress of projects funded by financing proceeds disappoints; industry competition intensifies.
Investment recommendation We are optimistic about Jiayuan's leading position in wireless communication security. During the 14th FYP Period, Jiayuan's communication data transmission products will be widely used in satellites, aircraft and other high-end defense and military scenarios, which bodes well for rapid earnings growth ahead. We estimate that Jiayuan's net profit in 2021E-23E will reach Rmb91mn/150mn/240mn, corresponding to EPS of Rmb0.98/1.63/2.60, respectively. Based on the relative valuation method, we assign Jiayuan a target price of Rmb98 and initiate coverage with a "BUY" rating.
