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What does a market value of hundreds of billions mean?

The capital market generally believes that a market value of 100 billion yuan is the watershed between small companies and large companies, a market value of 500 billion yuan is the watershed from big to strong, and a market value of 1 trillion yuan is a milestone, which is the watershed between excellent companies and giant companies.

From a global perspective, there are currently 1,200 to 1,300 listed companies in the world with a market value of more than 100 billion yuan. Among the more than 5,000 listed companies in China's capital market, there are only more than 120 companies with a market value of over 100 billion yuan, accounting for 3% of the total.

As one of them, Hikvision, the "Security Mao", plays an important role in the field of video control. Even around the world, more than 1,000 cities use Hikvision's surveillance equipment.

Lanfu Finance Network found that in the first half of 2024, Hikvision's market value fell by 34.896 billion yuan to 280.198 billion yuan.

It is worth noting that despite a certain degree of decline, Hikvision's market value still remains at the top among Zhejiang A-share listed companies, exceeding the second-ranked Ningbo Bank by 135.381 billion yuan.

A lean camel is bigger than a horse

Founded in 2001, Hikvision has been deeply involved in the fields of security and intelligent IoT for more than 20 years, with business covering more than 150 countries and regions around the world. The sectors cover public services, enterprises, small and medium-sized enterprises, overseas and technological innovation, forming a comprehensive market coverage and diversified business layout.

Since its listing in 2010, Hikvision has maintained a good growth momentum, and its performance has not fluctuated too much, and has been repeatedly favored by the capital market. According to Wind data, before 2018, Hikvision's stock was always in a steady upward trend, and even if it fell, it could stop falling and rebound in time. In the eight years since its listing, its stock price has risen 11 times.

Since 2018, as Hikvision was repeatedly sanctioned by U.S. congressmen and the federal government was prohibited from obtaining its products in any form, Hikvision's stock price began to decline.

The most serious situation occurred in 2022. Plagued by internal and external troubles, Hikvision's stock price fell by more than 40% during the year, and the stock price almost halved, causing the market value to evaporate by nearly 300 billion yuan. In contrast, the reduction in market value in the first half of 2024 does not seem to be a "big deal" for Hikvision. A lean camel is bigger than a horse is the best description of it.

In fact, Hikvision is not the only company to see its market value shrink. According to Wind data, in the first half of 2024, the total market value of A-shares will be about 80.94 trillion yuan, a decrease of 2.76 trillion yuan compared to the end of 2023, and the overall market value of the A-share market has declined to a certain extent.

Hikvision is no exception to this general environment. Regarding the decline in market value, Hikvision has also given its own explanation.

Starting from 2022, Hikvision's net profit showed negative year-on-year growth for the first time, and its net profit began to decline thereafter. From the data comparison, in 2021, Hikvision achieved a net profit attributable to the parent of 16.80 billion yuan, a year-on-year increase of 25.51%; in 2022, it achieved a net profit attributable to the parent of 12.84 billion yuan, a year-on-year decrease of 23.59%; in 2023, it achieved a net profit attributable to the parent of 14.11 billion yuan, a year-on-year increase of 9.89%; in Q1 of 2024, it achieved a net profit attributable to the parent of 1.916 billion yuan, a slight year-on-year increase of 5.8%.

In addition, the company's operating costs increased in the first half of the year, with administrative expenses and research and development investments both increasing significantly, resulting in a higher expense ratio and further squeezing profit margins.

From an industry perspective, the growth rate of the global security industry has gradually dropped below 10%, and market demand has been sluggish. At the same time, the domestic security market is highly competitive, with not only traditional security manufacturers, but also technology giants and AI unicorns entering the market, intensifying market competition.

In addition, faced with declining company performance and slowing industry growth, investors have adjusted their expectations for Hikvision, leading to a further decline in its market value.

Innovative business and intelligence are new growth points

Public information shows that Hikvision's main business segments are divided into Public Service Business Group (PBG), Enterprise Business Group (EBG), Small and Medium Enterprise Business Group (SMBG), overseas business and innovation business.

In recent years, the reduction in government investment has directly affected Hikvision's PBG business revenue, which, as one of the company's important business segments, has had a direct impact on net profit. At the same time, hindered by the macroeconomic environment, small and medium-sized enterprises have lost confidence in security investment, resulting in limited growth in its SMBG business.

According to the 2023 financial report data, Hikvision's main products and services achieved a total revenue of 68.78 billion yuan, a year-on-year increase of 4.41%, accounting for 76.99% of the revenue.

Among them, EBG achieved revenue of 17.85 billion yuan, an increase of 8.1% year-on-year, becoming the main force of growth; PBG achieved revenue of 15.35 billion yuan, a decrease of 4.8% year-on-year; SMBG achieved revenue of 12.68 billion yuan, a slight increase of 1.5% year-on-year, and the overall growth of the main business slowed down.

In contrast, Hikvision's innovative business achieved overall revenue of 18.553 billion yuan, a year-on-year increase of 23.11%, accounting for 20.77% of the total revenue, becoming a key point in driving the company's revenue growth.

It is understood that Hikvision has incubated 8 major innovative business platforms, covering smart home, mobile robots and machine vision, infrared thermal imaging, automotive electronics, smart storage, smart fire protection, smart security inspection, smart medical care and other fields. From 2018 to 2023, the revenue of innovative business will increase from 2.697 billion yuan to 18.553 billion yuan, and the proportion of revenue will increase from 5.41% to 20.77%.

In recent years, the domestic digital transformation to promote high-quality development is a definite long-term trend. It is predicted that there will still be a large room for growth in demand for domestic smart security in the future. According to the China Economic Industry Research Institute, in 2026, the scale of China's smart security market will reach 204.5 billion yuan, with a CAGR of 26% from 2021 to 2026. There is huge room for the development of smart security.

In this regard, Hikvision integrates AI technology with smart cameras to enable face detection, hybrid analysis, target scoring, etc. These modes make the application scenarios of the equipment more diverse. Its third-generation global cameras use deep learning algorithms and built-in high-performance AI chips to achieve public security monitoring in complex scenes, support high-definition face, body, vehicle, and non-motor vehicle capture, and extract structured information. In addition, these cameras also have the ability to intelligently focus, accurately capture fast-moving vehicles, and synchronously record and transmit the data of illegal vehicles.

In addition, Hikvision has also made a lot of attempts in the application of 5G technology. The application of 5G technology has enhanced the remote communication capabilities of smart walkie-talkies, allowing police officers to maintain stable conversations with the platform throughout the entire process; smart law enforcement recorders have better video recording effects under 5G networks, and can perform intelligent fill light even in scenes with poor lighting; mobile police general rules have built-in powerful positioning functions, which makes it easier for the background to grasp the movement trajectory of police officers in real time and improve case handling efficiency.

In this regard, analysts at Dolphin Investment Research believe that deploying AI is a correct move, but Hikvision's competitors include not only traditional security manufacturers, but also technology giants and AI unicorns. It can be said that everyone is deploying AI and everyone is investing in AI. It is not possible to rely on AI to fill the gap in the main business overnight. It requires large costs in R&D, manpower, etc., which is another suppression of net profit. Whether Hikvision's performance can quickly return to yesterday remains to be seen.