20220815-招银国际-海康威视-002415.SZ-On_the_right_track_of_recovery_10页_1mb

Hikvision (002415 CH) Summary

Core Content

Hikvision, a leading Chinese company in the global markets, reported FY2Q22 results that fell short of expectations due to several factors. The company's performance was impacted by a resurgence of the COVID-19 pandemic in China, lower gross profit margin (GPM), and increased R&D spending. Despite these challenges, Hikvision's innovative and overseas businesses showed strong growth, with the innovative segment increasing by 26% YoY and overseas sales rising by 19% YoY.

Main Points

• FY2Q22 Performance:

  • Revenue: RMB20.7bn (+4% YoY, +26% QoQ)
  • Net profit: RMB3.5bn (-19% YoY, +52% QoQ)
  • EPS: RMB0.37 (-20% YoY, +51% QoQ)
  • Gross margin: 42.7% (-3.3 pct pts YoY, -1.0 pct pts QoY)
  • Operating margin: 13.8% (-5.8 pct pts YoY, -1.7 pct pts QoQ)

• Business Breakdown:

  • Core business: RMB30.3bn (+6.8% YoY)
    • PBG: RMB6.975bn (-1.4% YoY)
    • EBG: RMB6.831bn (+2.6% YoY)
    • SMBG: RMB6.286bn (+4.0% YoY)
  • Construction: RMB884mn (+115.0% YoY)
  • Overseas: RMB9.686bn (+18.9% YoY)
  • Innovative business: RMB7.008bn (+25.6% YoY)
    • Smart home: RMB1.960bn (+4.7% YoY)
    • Robotics: RMB1.766bn (+44.8% YoY)
    • Thermal imaging: RMB1.360bn (+32.2% YoY)
    • HikAuto: RMB824mn (+49.2% YoY)
    • Storage: RMB728mn (+7.1% YoY)
    • Others: RMB369mn (+63.5% YoY)

• Earnings Revision:

  • Sales: RMB91.373bn (down 3% YoY)
  • Gross profit: RMB39.914bn (down 4% YoY)
  • Operating profit: RMB17.347bn (down 10% YoY)
  • Net profit: RMB17.256bn (down 7% YoY)
  • EPS: RMB1.83 (down 7% YoY)

• Valuation:

  • Current price: RMB33.41
  • Revised target price: RMB45.08 (down from RMB57.10)
  • 12-month forward P/E: 14.8x (1 SD below 3-year mean)
  • Hikvision is trading at 2-SD below three-year mean
  • The current valuation is seen as over-reacting to potential U.S. sanctions

• Peer Comparison:

  • Hikvision: BUY, P/E 14.8x, EV/sales 3.1x
  • Dahua: HOLD, P/E 9.2x, EV/sales 1.3x
  • SenseTime: BUY, P/E N/A, EV/sales 7.3x
  • AlInnovation: NR, P/E N/A, EV/sales 5.0x
  • Cambricon Tech: NR, P/E N/A, EV/sales 24.6x
  • Arcsoft: NR, P/E 52.6x, EV/sales 16.2x

Key Information

• Market Cap: RMB315,164mn

• Avg 3 months turnover: RMB2,223.43mn

• 52-week High/Low: RMB60.36 / RMB30.27

• Total Issued Shares: 9,433mn

• Shareholding Structure:

  • CETC: 36.8%
  • Kung Hong Ka - Chairman: 10.2%

• Share Performance:

  • 1-month: +1.3% (Relative: +5.2%)
  • 3-month: -5.9% (Relative: -10.8%)
  • 6-month: -27.5% (Relative: -20.5%)

• Operating Model:

  • Gross margin: 43.7% (down 3.2 pct pts YoY)
  • Operating margin: 19.0% (down 5.8 pct pts YoY)
  • Net margin: 18.9% (down 9.0 pct pts YoY)

• Financial Summary:

  • Income Statement:
    • Revenue: RMB91.373bn (FY22E)
    • Gross profit: RMB39.914bn
    • Operating profit: RMB17.347bn
    • Net profit: RMB17.256bn
  • Cash Flow:
    • Net cash from operating: RMB14.493bn
    • Capex: RMB3.271bn
    • Net cash from financing: RMB-4.366bn
    • Net change in cash: RMB6.986bn
  • Balance Sheet:
    • Total assets: RMB120.571bn (FY22E)
    • Total liabilities: RMB44.690bn
    • Total equity: RMB73.505bn
    • Current ratio: 2.73x
    • Inventory turnover days: 72
    • Receivable turnover days: 128
    • Payable turnover days: 133
  • Key Ratios:
    • ROE: 25.2% (FY22E)
    • ROIC: 35.8% (FY22E)
    • BVPS: RMB7.79
    • Dividend Yield: 0.03%

Conclusion

Hikvision is maintaining its BUY rating, despite the FY2Q22 results missing expectations. The company is expected to gradually recover in FY2H22E, driven by strong performance in its innovative and overseas segments. However, the current valuation is seen as over-reaction to geopolitical risks, and the company's focus on R&D and diversification is anticipated to drive long-term growth. The revised target price reflects lower margins and increased R&D costs.