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In the past two years, Hikvision (002415.SZ) has been continuously spinning off and listing. In December 2022, Hikvision's smart home service-focused EZVIZ Network (688475.SH) was the first to land on the Science and Technology Innovation Board. If Hikvision Robotics is successfully listed, Hikvision will have another IPO, and the number of "Hikvision-related" listed companies will increase to three.

According to the latest disclosure, the financial information recorded in Hikvision Robotics' IPO application documents expired on March 31 this year. Hikvision Robotics updated and submitted the relevant financial information on June 29.

In fact, the independence of the company listed through spin-off and its relationship with the parent company are the key issues of concern to regulators and investors. From 2020 to 2022 and the first half of 2023, Hikvision Robotics' performance was quite impressive, but a closer look revealed that it had other concerns. Under the background of strict supervision, can Hikvision push for another IPO of its subsidiary?

Hidden concerns emerge behind the impressive performance

It is understood that EZVIZ Network and Hikvision Robotics are both innovative businesses incubated internally by Hikvision. Among them, Hikvision Robotics is one of the businesses that the company attaches great importance to. Public information shows that Hikvision established a machine vision business center in 2014, mainly engaged in independent research and development of machine vision and mobile robot software and hardware; in 2016, the business was independent as Hikvision Robotics Company.

It is reported that Hikvision Robotics focuses on the fields of industrial Internet of Things, smart logistics and intelligent manufacturing with technologies such as visual perception, AI and navigation control as its core. In recent years, Hikvision Robotics has maintained good revenue. According to the prospectus, from 2020 to 2022, the company achieved revenue of 1.525 billion yuan, 2.768 billion yuan and 3.942 billion yuan respectively; the net profit attributable to the parent was 65.0964 million yuan, 482 million yuan and 641 million yuan respectively. In the first half of 2023, the company achieved revenue of 2.278 billion yuan and net profit attributable to the parent was 412 million yuan.

Although Hikvision Robotics' performance is impressive, there are hidden concerns behind it.

First, a large part of Hikvision Robotics' profits come from government subsidies and tax incentives. From 2020 to 2022 and the first half of 2023, Hikvision Robotics' subsidy income accounted for 22.84%, 19.06%, 8.61% and 12.63% of its total profits, respectively. During the same period, the company enjoyed tax incentives such as additional deductions for R&D expenses, VAT refunds, and high-tech enterprise income tax incentives, accounting for 112.51%, 24.74%, 28.43% and 28.15% of its total profits, respectively.

Secondly, Hikvision Robotics' net operating cash flow continues to be negative. From 2020 to 2022 and the first half of 2023, Hikvision Robotics' net operating cash flow was -103 million yuan, -325 million yuan, -39.718 million yuan, and -294 million yuan, respectively. In this regard, Hikvision Robotics stated that with the expansion of the company's production and operation scale, the purchase of raw materials and product inventory have increased accordingly, accounts receivable have increased, and there is a certain time difference in the payment and collection settlement of upstream and downstream.

During the same period, Hikvision Robotics' accounts receivable balances were RMB 446 million, RMB 681 million, RMB 1.202 billion and RMB 1.644 billion respectively. The company said that the company's sales scale continued to expand, resulting in an increase in accounts receivable. At the same time, the internal payment approval process of some of the company's customers was relatively strict, resulting in overdue accounts receivable.

In addition, Hikvision Robotics' asset-liability ratio has also been at a high level. During the reporting period, Hikvision Robotics' asset-liability ratios were 86.84%, 69.46%, 70.49% and 66.23%, respectively, significantly higher than comparable companies in the same industry.

Why push subsidiaries to go public one after another?

It is understood that the IPO of Hikvision Robotics was launched in December 2021. At that time, Hikvision stated in the announcement that it would split its subsidiary Hikvision Robotics and list it domestically.

Lanfu Finance Network found that since Hikvision Robotics' IPO application was accepted on March 7, 2023, until the Shenzhen Stock Exchange issued the "Implementation Letter of the Review Center's Opinions on Hangzhou Hikvision Robotics Co., Ltd.'s Application for Initial Public Offering and Listing on the Growth Enterprise Market" on January 15, 2024, Hikvision Robotics' listing process has not disclosed the latest progress.

It was only after the financial information in Hikvision Robotics' IPO application documents expired on March 31, 2024 that Hikvision Robotics updated and submitted the relevant financial information on June 29.

In addition to Hikvision Robotics, Hikvision has built a large innovative business camp through multiple subsidiaries such as Hikvision Micro-Image, Hikvision Automotive Electronics, Hikvision Storage, Hikvision Fire Protection, and EZVIZ Network. This part of the business contributed more than 18.5 billion yuan in revenue to Hikvision in 2023, accounting for 20.77% of the company's total revenue.

In recent years, Hikvision has frequently gone public by spinning off its subsidiaries. In December 2022, EZVIZ successfully landed on the Science and Technology Innovation Board. However, on the first day of listing, EZVIZ fell below the issue price, closing at 25.25 yuan per share, down 12.23%. In addition, EZVIZ also saw an increase in revenue but not profit that year. In 2022, the company achieved revenue of 4.306 billion yuan, a slight increase of 1.61% year-on-year; net profit was 333 million yuan, a year-on-year decrease of 26.10%.

It should be noted that Hikvision has successively promoted the IPO of its subsidiaries, perhaps hoping to seek new growth momentum to break through the current development bottleneck. Since 2017, Hikvision's revenue and net profit have continued to narrow, with revenue growth rates of 31%, 19%, 16%, and 10% respectively; net profit growth rates of 27%, 21%, 9%, and 8% respectively.

Although it resumed year-on-year growth in 2021, Hikvision experienced its first decline in net profit since its listing in 2022. Its net profit was 12.838 billion yuan, a year-on-year decrease of 23.65%; its revenue was 83.166 billion yuan, a year-on-year increase of 2.14%, setting a historical low.

Hikvision is like a moving truck, carrying a heavy load on an extremely rugged road. Against this backdrop, Hikvision is pushing for its subsidiaries to be listed independently to support the continued growth of its business.

Under strict supervision, enthusiasm for spin-off listings has faded

Since the introduction of the new rules for spin-off listings at the end of 2019, the A-share market has been in a spin-off listing boom. However, as the market environment continues to change, the enthusiasm for spin-off listings continues to decline. Recently, Hisense Visual, Jingsheng Electromechanical, Baosteel, Huahai Pharmaceutical and other companies have issued announcements stating that they will terminate their plans to spin off their subsidiaries for listing.

Among them, Jingsheng Mechanical & Electrical (300316.SZ) originally planned to spin off its subsidiary Meijing New Materials to be listed on the Shenzhen Stock Exchange's Growth Enterprise Market; Hisense Visual Technology (600060.SH) originally planned to spin off its subsidiary Xinxinwei to be listed on the Shanghai Stock Exchange's Science and Technology Innovation Board; Baosteel Group (600019.SH) originally planned to spin off its subsidiary Baowu Carbon to be listed on the Growth Enterprise Market. Baowu Carbon is mainly engaged in the research, development, production and sales of tar refined products, benzene refined products and carbon-based new materials.

Unfortunately, the above companies eventually terminated their plans for spin-off listings. Many listed companies said that based on comprehensive considerations of the current market environment and the development plans of their subsidiaries, and after full communication and careful discussion with relevant parties, the companies terminated their plans for spin-off listings.

Analysts said that the enthusiasm for spin-off listings has dropped sharply. Some companies have voluntarily given up IPOs based on changes in the market environment and their own business strategy considerations, but some companies may have passively given up IPOs under the current strict regulatory environment.

In April this year, the State Council issued the "Several Opinions on Strengthening Supervision, Preventing Risks and Promoting High-Quality Development of the Capital Market", which included the item "Further Improving the Issuance and Listing System", which clearly put forward the requirements of "strictly supervising spin-off listing". Under strict supervision, the enthusiasm of listed companies for spin-off listing has become more rational.

This is in stark contrast to Hikvision. Most other companies have retreated under strict supervision, but Hikvision has repeatedly spun off its subsidiaries for IPO, which shows its desire for "spin-off listing". Whether Hikvision's spin-off listing plan will eventually come true, Lanfu Finance will continue to follow up.