Zhixin Finance learned from the Junjincs Report that the rapid development of satellite communication technology has led to the arrival of a wave of satellite internet industry. Currently, satellite internet has become a key strategic area for national information infrastructure construction and competition among major countries in the information age. Issues of digital security and network security that it faces are gradually emerging. With the cross-domain fusion of satellite safety and network security, the development opportunities of the satellite internet security industry are coming. Companies with state-owned background, product capabilities and benchmark customer advantages are optimistic.

Target: Jiayuan Technology (301117.SZ), EdeNet (002268.SZ); Related products: Qimingxingchen (002439.SZ), Anheng Information (688023.SH), Qianxin (688561.SH), Shengbang Security (688651.SH), Green League Technology (300369.SZ), Jidazhengyuan (003029.SZ).

Opinions of Huajin Securities are as follows:

From the perspective of safety domain, the main security threats faced by satellite internet involve communication link security, ground system security, satellite and payload security, supply chain security, and user terminal security and many other fields.

Of these, the three security domains of communication links, ground systems, and supply chains are the main targets of attack faced by the current satellite internet. Methods of attack mainly include interference, link hijacking, vulnerability exploitation, eavesdropping, and malicious programs, where interference, link hijacking, and vulnerability exploitation are the most common attack methods.

From the perspective of security products, satellite internet security products mainly include communication encryption and authentication, intrusion detection and defense, network attack resilience testing, supply chain risk management, and log systems.

Among them: 1) Communication link security: mainly related to the security of uplink, downlink, and intersatellite links, with encryption and authentication products as main; 2) Ground system security: with a wide variety of products including firewalls, security gateways, and satellite-based intrusion detection and defense systems and log systems suitable for satellite internet; 3) Supply chain security: mainly covering security in satellite system development, subsequent testing and verification, and security management of suppliers, third-party institutions, and others. Products include space targets, multifactor authentication, and others.

The main participants in satellite internet security include professional satellite security vendors, as well as defense contractors and military units.

Among them, professional satellite security vendors mainly focus on encryption products, while defense contractors and military units have greater product coverage. They can integrate security functions into satellite communication equipment and deliver them to customers in the form of solutions. Domestic internet security vendors can be divided into two categories based on their enterprise background: 1) represented by EdeNet and Aerospace Jiangnan, the national team. Where EdeNet relies on China Electrics and Aerospace Jiangnan relies on Aerospace Fifth Academy. The national team has certain advantages in obtaining the total package project, such as EdeNet as a general package unit providing password security products for the star network, with a contract amount exceeding 20 million yuan; 2) represented by Jiayuan Technology, a private satellite security vendor with advantages in product technology and benchmark customers. They are also important participants in the satellite security market.

The competitiveness of domestic satellite internet security vendors is mainly reflected in two aspects: product capabilities and benchmark customers.

1) Satellite security products require high reliability of encryption, authentication and detection in the space environment: Due to the high radiation, extremely low or high temperatures and other characteristics in the space environment, compared to the ground environment, a series of problems such as single particle flips of semiconductor devices are prone to occur, which will lead to the failure of security equipment. Therefore, satellite security vendors need to have related technologies such as radiation-proof software and hardware platform development in space environment. The technological requirements can satisfy a series of rigid requirements deployed in satellites. 2) Benchmark customers and projects are the basis for rapidly expanding the market in the future. EdeNet and Aerospace Jiangnan products have entered the supply chain of large-scale satellite operators such as China StarNet and China Satcom. Jiayuan Technology has also become a supplier of communication and transmission network security to major military factories and established an outstanding advantage in benchmark customers.

Market size estimation: The satellite internet security market in China will add 7 billion yuan in 2024-2027.

1) According to the prospectus of Jiayuan Technology, the total demand for satellite security is expected to be about 6.9-13.8 billion yuan during the "14th Five-Year Plan" period, that is, the current average annual satellite security market is about 1.4-2.8 billion yuan; 2) Incomplete statistics show that according to the declaration plan submitted by various companies to the International Telecommunication Union (ITU), it is estimated that China's small satellite population will reach about 14,000 by 2027; 3) Combining NSR's predictions on the satellite network security expenditure per satellite and the satellite manufacturing cost, it is conservatively assumed that the average security expenditure per satellite is 500,000 yuan. That is, the satellite internet will have opportunities to add 7 billion in security-related demand from 2024 to 2027.

Risk warning: Satellite construction progress is less than expected; satellite launch progress is less than expected; satellite internet security demand growth is less than expected; market competition intensifies; relevant policies are issued less than expected.