Translate to English: Hikvision, 400 billion in gray dust vanishes!

Compared to its peak, Hikvision has lost 60% of its value, with a market capitalization evaporation of about 400 billion, and its stock price has fallen back to 2017 levels.

Of course, Hikvision (002415.SZ) has also had its moments of glory.

From 2010 to 2021, Hikvision's operating income grew from 3.605 billion yuan to 81.42 billion yuan, with a compound annual growth rate (CAGR) of 32.7%, and its net profit increased from 1.052 billion yuan to 16.8 billion yuan, with a CAGR of 28.7%.

Moreover, since its listing, Hikvision's operating performance has been on the rise year after year, even in 2020, its revenue growth rate reached double digits. During this period, Hikvision's market value skyrocketed from 40 billion to 640 billion, becoming a benchmark for value investment in A-shares.

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However, everything came to a halt in 2022.

In 2022, despite a positive growth rate in operating income, Hikvision's net profit plummeted by 23.59%, marking the first decline since its listing. In the first half of this year, the company's operating income was 41.2 billion yuan, a year-on-year increase of 9.68%, but despite the increase in revenue, the profit did not increase, and the net profit fell by 5.13%. Even with the additional 470 million yuan in provisions due to share cancellation, it was barely positive.

In a nutshell, Hikvision's performance has lost momentum!

So, the question arises, what are the reasons for Hikvision's performance slowdown and the sharp drop in stock prices? What is the current fundamental situation of Hikvision as a company? Does it still have investment value in the future?

As is well known, Hikvision is a security company, but after more than a decade of rapid growth, the domestic security field is close to saturation.In the public utilities sector, cameras are now almost ubiquitous in public spaces. Coupled with the government's financial constraints in recent years, the demand for cost-effective products has increased, leading to increasing market competition and a more inward-looking market. In the civilian sector, the market is characterized by a large number of players, fierce competition, and a fragmented market share. In the face of companies like Huawei and Xiaomi, Hikvision does not have an absolute advantage.

In short, Hikvision's core business is facing tremendous growth pressure!

Some might argue that the security market today is no longer as simple as installing a camera. However, if installing cameras is a necessity, then the applications derived from it can only be considered as added extras. After all, while smart cities are desirable, at least for now, the government is not willing to spend the money.

Let's be honest, Hikvision is a very hardworking company.

On one hand, with the advent of the AI security concept, companies like Huawei, Alibaba, SenseTime, and Megvii are aggressively expanding into the security field, focusing on scale rather than profit, putting a lot of pressure on Hikvision. But Hikvision has withstood this pressure. On the other hand, Hikvision is continuously innovating and developing new businesses, including smart home, robotics, thermal imaging, automotive electronics, and storage, constantly creating new momentum for the company's development.

Data does not lie.

In 2023, Hikvision's innovative business revenue was 15.07 billion yuan, a year-on-year increase of 23%; in the first half of this year, it grew by 26.2%. It is clear that the performance growth rate of innovative businesses has far exceeded that of traditional businesses.

Furthermore, there is the issue of going global.

As a security giant, not to mention being blacklisted by the United States, just considering the increasingly complex global situation, security, being an extremely sensitive field, inevitably faces resistance. However, from 2018 to the present, Hikvision's overseas revenue has been increasing year by year, especially in the first half of this year, with the overseas business growth rate at 17.5%, exceeding that of domestic business.

Regrettably, despite Hikvision repeatedly proving its excellence with facts, the capital market is not willing to give an optimistic outlook for this.In the eyes of the capital market, Hikvision is facing a slowdown in growth, a main business nearing its ceiling, intensifying competition, and an unclear outlook for overseas markets. Consequently, the stock price is incessantly chattering.

Of course, this is also related to the company's valuation. In the past, Hikvision's annual compound growth rate was close to 30%, leading the market to grant a high valuation, with the price-to-earnings ratio once exceeding 40 times. However, as the growth rate of the security business slows down, coupled with the overall market decline and superimposed with geopolitical and other special factors, the market has repeatedly compressed its valuation.

So the question arises, does Hikvision still have investment value?

Firstly, Hikvision's current situation does not deviate from the overall macroeconomic trend; secondly, in the "adverse" market environment, the company's gross margin remains above 45%, especially with overseas gross margins higher than domestic ones, indicating that the company's core competitiveness has not changed; furthermore, although the security business has slowed down, the innovative business is outstanding, and the company is nurturing the next growth point.

Additionally, the company's management still sets a full-year performance target of 14 billion yuan, and Hikvision remains a high-quality company with profits exceeding 10 billion yuan.

Perhaps the market should accept Hikvision's return to mediocrity. At least for now, it is unrealistic to expect Hikvision to return to high growth. But regardless, Hikvision is still Hikvision, and it remains one of the highest-quality companies in the A-share market.