20181211-申万宏源研究_香港_-海康威视-002415.SZ-Changing_focus_12页_611kb

Hangzhou Hikvision Digital Technology (002415:CH) Summary

Core Content

Hangzhou Hikvision Digital Technology is a leading company in the Information Technology sector, specifically within the Electronic Equipment & Instruments sub-industry. The report maintains a BUY recommendation with an unchanged target price of Rmb68.48, which implies a 155% upside from the current price.

Key Financial Data

Main Points

1. Trade War Impact

• The US has temporarily postponed raising tariffs on Chinese goods, which is beneficial for Hikvision.
• Hikvision's revenue exposure to the US is minimal, with less than 6% of its 17A revenue coming from the US.
• The company has diversified its export strategy, promoting high-value-added solutions in developing countries and increasing low-end product sales in North America.
• The company's efforts to reduce reliance on imported chips, especially VPU and GPU, are ongoing and show promise with domestic alternatives.

2. Supply Chain and Chip Development

• Hikvision's upstream suppliers include IC, PCB, power supply, chassis, and audio & video algorithm firms.
• IC is a major constraint, but the company is moving towards domestic alternatives.
• Domestic AI chip developers like NextVPU, Intengine Tech, Kneron, Cambricon, and Enflame Tech are gaining traction and may replace imported components in the future.

3. Market and Sales Trends

• Distributors, government clients, and corporate clients account for 30%, 30-35%, and 35-40% of domestic sales, respectively.
• The "Honeycomb plan" has helped reduce accounts receivable-to-revenue ratios, improving financial health.
• Public tenders for security and surveillance projects showed a significant increase in October-November 2018, indicating strong demand in the sector.

4. Earnings and Forecasts

• The report maintains EPS forecasts of Rmb1.25 in 2018E, Rmb1.58 in 2019E, and Rmb1.86 in 2020E.
• Net profit is expected to grow by 10-30% YoY in 2018E, with a focus on improving performance in the distributor channel in 4Q18E.
• The company's net profit growth has slowed due to the impact of the "Honeycomb plan" and trade disputes, but is expected to recover.

5. Valuation and Financial Model

• The WACC is calculated at 7.35%, based on a 11% effective tax rate, a 40% debt-to-asset ratio, and a beta of 1.46.
• Using the FCFF model, the target price is Rmb68.48, which represents a 43.3x 19E PE.
• The company is expected to achieve QoQ growth in 4Q18E despite uncertainties related to trade disputes.

Key Information

• Hikvision has taken proactive steps to mitigate trade war risks by adjusting its export strategy and investing in domestic chip development.
• The "Honeycomb plan" has had a positive impact on reducing accounts receivable and improving cash flow.
• The growth in public tenders for video surveillance projects indicates a recovering market and increased demand.
• The target price remains at Rmb68.48, with a 155% upside from the current price, supporting the BUY recommendation.
• The financial model shows a positive outlook with a focus on long-term growth and value creation through new businesses and improved operational efficiency.

Conclusion

Despite the trade war uncertainties, Hikvision is well-positioned to benefit from a potential truce between China and the US, and its efforts in diversifying its export markets and developing domestic chip alternatives are promising. The company's financial performance is expected to improve in the coming quarters, supporting the BUY recommendation.