2024-08-17
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$Hikvision(002415.SZ) The second quarter financial report of 2024 (as of June 2024) was released after the A-share market closed on the evening of August 16, 2024 Beijing time. The key points are as follows:
1. Overall performance: increased revenue but not increased profits。Hikvision achieved revenue of 23.4 billion yuan in the second quarter of 2024, a year-on-year increase of 9.5%, which was lower than market expectations.Revenue growth mainly comes from innovative business; In the second quarter of 2024, the company achieved a net profit attributable to shareholders of RMB 3.1 billion, a year-on-year decrease of 10.7%, which was lower than market expectations.The decline in gross profit margin and the increase in expenses have resulted in the company experiencing a situation where “revenue increased but profit did not”.
2. Progress of each business: Innovative business is the main source of growth.In the first half of 2024, the overall performance of the three major domestic business groups remained relatively sluggish.The large and medium-sized enterprise group (EBG) and the small and medium-sized enterprise group (SMBG) have increased, but the increase is not large, while the domestic public service group (PBG) has experienced a nearly double-digit decline.The growth rate of innovative business in the first half of the year was still 26.1%, and the growth performance of innovative business both at home and abroad was good;
3. Integration of hardware and software: the proportion of software continues to decline.Since transforming from a hardware manufacturer that only sold surveillance to a security leader with software empowerment, the company has maintained an integrated hardware and software business model.Dolphin Jun estimates that the company's software business will account for 20% of its revenue in the first half of 2024. The growth rates of both software and hardware businesses have declined this quarter, but the risk resistance of the software business is obviously weak.
Dolphin's overall view:
Hikvision's revenue and net profit performance this quarter were not very good.Although revenue still rebounded this quarter, the declining gross profit margin directly led to a decrease in net profit.
Specifically,1) Revenue: The innovative business continued to maintain double-digit growth and was the main source of the company's revenue growth. However, it cannot be ignored that the company is still affected by the government and enterprises' control of expenditures, and the domestic public service business continued to decline;2) Profit:The proportion of the company's software revenue continued to decline to 20%, which structurally affected the company's comprehensive gross profit margin. Combined with the growth of expenses, the company fell into a situation of "increasing revenue but not profit" this quarter.
Dolphin believes that under the current backdrop of some customers “cutting costs and controlling expenses”, the company’s government business is unlikely to improve in the short term.Real estate development and commercial activities will also have a direct impact on the EBG and SMBG businesses. With the growth of overseas and innovative businesses, the company can bring certain support, but the performance will continue to be under pressure. Although the company's stock price has declined significantly, the current operating conditions are still difficult to bring enough confidence to the market.
The following is Dolphin Jun’s detailed analysis of Hikvision’s financial report:
1. Core data: Increased revenue but no increased profit
1.1 Revenue
Hikvision achieved revenue of 23.4 billion yuan in the second quarter of 2024, up 9.5% year-on-year, lower than market expectations (25 billion yuan)The company's revenue growth was mainly due toDriven by the growth of innovative businesses。
1.2 Gross profit margin
Hikvision achieved a gross profit of 10.4 billion yuan in the second quarter of 2024, a year-on-year increase of 7.8%.The growth rate of gross profit was lower than that of revenue, mainly because the company's gross profit margin declined again this quarter.
Hikvision's gross profit margin this quarter was 44.5%, down 0.7 percentage points year-on-year and lower than market expectations (45.8%).The company's gross profit margin declined year-on-year this quarter.This is mainly due to the decline in the proportion of software revenue, which has a structural impact on gross profit margin。
1.3 Core expenses
Hikvision's core expenses mainly include sales expenses, administrative expenses and R&D expenses.Hikvision's three core expenses in the second quarter of 2024 totaled 6.91 billion yuan, an increase of 11.6% year-on-year.The three core expense ratios reached 29.5%, a slight increase year-on-year.
1) Sales expenses:The company's sales expenses this quarter were 3.101 billion yuan, a year-on-year increase of 14.8%.The sales expense ratio for this quarter was 13.3%, up 0.7pct year-on-year. The company's investment in sales has increased significantly;
2) Administrative expenses: The company's administrative expenses for this quarter were RMB 784 million, a year-on-year increase of 16.7%.The management expense ratio for this quarter was 3.4%, up 0.3pct year-on-year;
3) R&D expenses: The company's R&D expenses for the quarter were RMB 3.027 billion, a year-on-year increase of 7.3%.The R&D expense ratio for this quarter was 12.9%, down 0.3 percentage points year-on-year. The continued growth in R&D expenses also shows the company's emphasis on R&D.
As of the end of 2023, the number of the company's R&D personnel has increased to more than 28,000, and the average salary of R&D personnel has reached 400,000 yuan.
1.4 Net Profit attributable to parent company
Hikvision achieved a net profit of 3.15 billion yuan attributable to shareholders in the second quarter of 2024, down 10.7% year-on-year, lower than market expectations (4.03 billion yuan)The company's net profit margin for the quarter was 14.6%, down 3.2 percentage points year-on-year. The sluggish performance of the three major business units in China affected the company's final performance.
II. Progress of each business: Innovative business is the main source of growth
Starting from 2021, Hikvision will no longer disclose specific details of "front-end products", "back-end products" and "central control products", but will directly classify them into the company's "main products and other products" projects.In the financial report, the company focused on disclosing the progress of various innovative businesses, and the company's development focus is also shifting to innovative businesses.。
1) The core products and other product businesses remain the company's largest source of revenue, contributing 73% of revenue in the first half of 2024.Although the main business products still grew in the first half of the year, the growth rate was lower than the company as a whole, and the business share continued to decline;
2) The proportion of innovative business continued to increase. In the first half of 2024, the company's innovative business share remained at 25%, an increase of 3pct year-on-year.in,robotBusiness, storage business and automotive business were the main sources of growth.
2.1. Main products and services
Hikvision's core products and services business achieved revenue of 30.88 billion yuan in the first half of 2024, a year-on-year increase of 5.1%.
Overall performance: In the domestic main product business, the overall performance of the three major business groups began to improve in the first half of 2024.① Domestic Public Service Group (PBG)Down 9.2% year-on-year, continuing to decline; ②Domestic Business Groups (EBGs) of large companiesA year-on-year increase of 7%;Domestic Small and Medium Enterprise Business Group (SMBG)Year-on-year growth of 0.6%.
Dolphin believes that among the three major domestic business groups in the first half of 2024, EBG and SMBG businesses are closer to economic life. Although they have recovered, they are still relatively sluggish; while PBG comes more from government and enterprise projects, and the number of government procurement is still declining.
In the overseas main business, the revenue reached 11.441 billion yuan in the first half of 2024, a year-on-year increase of 15.5%., the overall growth rate is better than the domestic performance.
2.2 Innovative Business
The company's innovative business mainly includesSmart Home, robotics, thermal imaging, storage, and automotive business.Hikvision's innovative business achieved revenue of 10.328 billion yuan in the first half of 2024, a year-on-year increase of 26.1%.It is the main source of growth for the company.Among innovative businesses, the growth rates of storage business and automotive business reached 65.5% and 60.4% respectively.。
The company's innovative business has achieved good growth both at home and abroad. The following are the breakdowns:
1) In the domestic innovative business, Hikvision achieved revenue of 7.589 billion yuan in the first half of 2024, a year-on-year increase of 25.9%In terms of revenue volume, innovative businesses are still mainly concentrated in domestic business.
2) In terms of innovative businesses overseas, Hikvision achieved revenue of RMB 2.739 billion in the first half of 2024, a year-on-year increase of 26.9%.
3. Software and hardware integration: the proportion of software continues to decline
Hikvision relies on cameras and other hardware carriers to ship products, and provides follow-up software services to customers, thus realizing the company's "software and hardware integration" business framework. From the financial report released this time, how did Hikvision perform in terms of both software and hardware?
3.1 Software
Although Hikvision disclosed the product categories separately in its annual report, it did not disclose the company's software revenue separately. Since the company's software products can enjoy the VAT refund policy, it can be seen from the company's annual report that there is a VAT excess tax refund project, and the software revenue can be calculated backwards from the VAT refund amount.
“Software product revenue = VAT refund amount / refund ratio”
(Note: "Tax refund ratio = VAT calculation ratio - VAT actual payment ratio")
Dolphin estimates that Hikvision's software business revenue in the first half of 2024 will be 8.363 billion yuan, a year-on-year increase of 6.9%.The added value of Hikvision's software continued to decline to around 20% of the company's total revenue.
3.2 Hardware
After calculating the software added value, Hikvision's hardware revenue can be obtained through the company's annual total revenue.In the first half of 2024, Hikvision's hardware business revenue was 32.85 billion yuan, a year-on-year increase of 10.4%.
After comparing the growth rates of Hikvision's software and hardware revenues, it was found that the company's hardware and software growth rates both declined in the first half of the year.Economic changes have a greater impact on the software side, while the hardware side has basically maintained growth.。Overall, hardware procurement is more risk-resistant, but software empowerment helps improve the company's profitability. However, the overall demand recovery is weak, and the company's hardware can drive revenue growth, but the profit performance is still weak.