China International Capital Corporation Limited

About Hillstone Network Technology Co., Ltd

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Special on-site inspection report

In accordance with the requirements of relevant laws, regulations and normative documents such as the Administrative Measures for the Registration of Initial Public Offerings, the Administrative Measures for the Sponsorship Business of Securities Issuance and Listing, the Self-Regulatory Guidelines for Listed Companies on the Shanghai Stock Exchange No. 11 - Continuous Supervision, and the Regulatory Guidelines for Listed Companies No. 2 - Regulatory Requirements for the Management and Use of Funds Raised by Listed Companies, China International Capital Corporation Limited (hereinafter referred to as "CICC" or "Sponsor") is the company of Hillstone Network Communication Technology Co., Ltd. (hereinafter referred to as "Hillstone Network Technology Co., Ltd."). "Hillstone Network Technology", "the Company") initial public offering of shares and the issuance of convertible corporate bonds to unspecified objects, the sponsor of the initial public offering of shares and the issuance of convertible corporate bonds to unspecified objects, has conducted a special on-site inspection of Hillstone Network Technology, and the inspection is now reported as follows:

1. The basic situation of this on-site inspection

According to the 2024 annual report of Hillstone Network Technology, the company's operating income in 2024 will be 996.5895 million yuan, a year-on-year increase of 10.60%; net profit attributable to shareholders of listed companies was -137.2082 million yuan, a year-on-year decrease of 42.78%; The net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses was -151.0059 million yuan, a year-on-year decrease of 39.26%. In response to the above situation, CICC communicated with the relevant personnel of the company, formulated an on-site inspection plan, and conducted on-site inspections from March 4 to March 5, 2025 and from March 27, 2025 to March 28, 2025. Through interviews with senior executives, consulting relevant announcement documents and financial information, etc., the company's operation, financial situation and future development were studied to understand the main reasons for the company's profit changes.

2. The main issues and opinions of this on-site inspection

(1) Procedures for on-site verification and implementation

1. Check the company's 2024 performance express report and 2024 annual report and other announcements, and review and analyze the financial statements and related operating data.

Divide.

3. Check the 2024 annual reports or performance forecasts of listed companies in the domestic cybersecurity industry to analyze whether the company's 2024 annual performance is significantly different from that of comparable companies in the same industry.

4. Interview the secretary of the board of directors and the chief financial officer of the company to learn more about the company's production and operation in 2024, analyze the reasons for the company's loss in 2024, and understand the company's latest business situation and future business plan.

(2) Analysis of changes in the company's performance and the reasons for them

Unit: 10,000 yuan

Item FY2024 FY2023 Year-on-year change (%) FY2022

Operating income 99,658.95 90,104.01 10.60 81,159.61

Total operating costs 117,408.88 116,222.91 1.02 104,788.22

Including: operating costs 29,924.34 30,918.20 -3.21 25,710.10

Taxes and surcharges 1,168.52 1,448.60 -19.33 667.46

Selling expenses 38,523.58 38,752.85 -0.59 37,488.36

Administrative expenses 9,895.21 9,227.42 7.24 6,160.04

R&D expenses 35,975.50 34,348.72 4.74 33,933.70

Financial expenses 1,921.74 1,527.11 25.84 828.57

Operating profit -13,985.78 -25,837.33 -45.87 -22,389.81

Total profit -14,412.31 -26,032.75 -44.64 -22,559.68

Net profit -13,801.81 -24,080.12 -42.68 -18,395.77

Net profit attributable to shareholders of listed companies -13,720.82 -23,981.15 -42.78 -18,247.56

Deductions attributable to shareholders of listed companies are -15,100.59 -24,859.30 -39.26 -20,553.06

Net profit from recurring gains and losses

In 2024, the company's operating income increased by 10.60% over the same period of last year, and the operating profit, net profit attributable to shareholders of listed companies and net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses decreased by 45.87%, 42.78% and 39.26% respectively compared with the loss of the same period last year. In 2024, the company's operating income has increased, and the loss has also shown a narrowing trend compared with the same period, mainly due to the company's steady progress towards the business goal of "cost control, efficiency increase, and healthy development", adhering to the development path of "technology + ecology", focusing on the improvement of operational efficiency and the restoration of profitability, and carrying out business tough battles such as "Baike Plan", "Iteration of Chip Strategy", "Advance of Information Innovation Campaign" and "Security Service Upgrade", and various business indicators have been steadily improved; At the same time, in order to continue to consolidate the technical advantages of products, lay out the information innovation market, and enhance the company's medium and long-term competitiveness, the company vigorously promoted the research and development progress of ASIC security chips, and in October 2024, the company's ASIC security chips were trial-produced tape-out

The success of the one-time test has laid a good foundation for further expanding the sales scale and achieving scale effect in the future.

3. Matters and suggestions for the attention of listed companies

The company should reasonably adjust its business strategy according to its own actual situation, further strengthen operation and management, and prevent related business risks. In the event that the company's operating profit and net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses continue to lose, the company shall do a good job in disclosing relevant information, timely and fully disclose relevant risks, and effectively protect the interests of investors.

4. Whether the listed company has any matters that should be reported to the China Securities Regulatory Commission and the Shanghai Stock Exchange as stipulated in the Administrative Measures for the Sponsorship Business of Securities Issuance and Listing and the relevant rules of the Shanghai Stock Exchange

According to Article 26 of the Self-Regulatory Guidelines for Listed Companies on the Shanghai Stock Exchange No. 11 - Continuous Supervision, the sponsor believes that the issuer's 2024 operating profit and net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses are other matters that should be subject to on-site verification, and the on-site inspection report needs to be submitted to the Shanghai Stock Exchange.

5. Cooperation of listed companies and other intermediaries

In the process of continuous supervision of the sponsor in the process of special on-site inspection, the listed company has given active cooperation and can provide the sponsor with the necessary documents, materials and relevant information in a timely manner. The on-site inspection was conducted independently by the sponsor and no other intermediaries were arranged to cooperate.

6. On-site inspection conclusions

After on-site inspection, the sponsor believes that the company's loss in 2024 is mainly caused by the company's organizational structure adjustment, continuous investment in marketing capacity building and product research and development, but the loss has been significantly narrowed, and the company's annual operating income has achieved steady growth. The cybersecurity industry in which the company operates has been improving for a long time and has not undergone major adverse changes. For the company's future business conditions, the sponsor will continue to pay attention to and supervise the company's future business conditions in a diligent and conscientious manner, and urge the listed company to disclose relevant information in a timely manner.

It is hereby reported.

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