On the afternoon of July 23, Hikvision released its 2021 semi-annual report. In the first half of 2021, the company achieved total operating income of 33.9021 billion yuan, an increase of 39.68% over the same period last year; it achieved net profit attributable to shareholders of listed companies of 6.48142 billion yuan, an increase of 40.17% over the same period last year; the company's overall gross profit margin in the first half of 2021 was 46.30%, a decrease of 3.46 percentage points from the same period last year.
In a situation where the global COVID-19 epidemic is still relatively serious, periodic economic shutdowns and recessions in some countries and regions continue to occur, and in the face of the U.S. government’s multifaceted sanctions on Hikvision and other companies, Hikvision It is beyond the expectations of most people in the industry to achieve such good results.
Carefully read the company’s 2021 semi-annual report, which shows that operating income increased by nearly 40%.
The first reason is that the application of video software and hardware products in non-security fields has grown rapidly. The company vigorously promotes "digital intelligence integration" and further combines AI with sensory big data and multi-dimensional big data to promote the application of intelligent management methods and help users in various industries undergo digital transformation.
The company's transformation from a video surveillance company to an Internet of Things company that uses smart sensing and big data applications as a means to provide smart services for cities and enterprise manufacturing management has been relatively smooth. Revenue from video products and services, which accounted for 88.42% of the company's total revenue, was 27.91253 billion yuan, an increase of 30.07% over the same period last year. An important reason for the growth is that video products and services have been increasingly used in non-security fields.
Looking at the company's three business groups (BG), SMBG has the largest revenue growth, followed by PBG and EBG.
1. The company’s public service business group (PBG) revenue was 7.717 billion yuan, an increase of 29.31%;
2. The enterprise business group (EBG) revenue was 7.219 billion yuan , an increase of 22.07%;
3. The revenue of the Small and Medium Enterprises Business Group (SMBG) was 6.174 billion yuan, an increase of 105.80%.
The income gap between the three business groups is rapidly decreasing. Not only are various enterprises increasingly using smart video and big data technologies for corporate production and management, companies are also increasingly involved in city-level projects related to people's livelihood, such as administrative services, municipal administration, water conservancy, and emergency services. Management, etc., to help the government improve the efficiency and quality of public services.
Secondly, the growth rate of revenue from innovative products far exceeds the growth rate of revenue from video products and services, and a greater proportion of innovative products are used in the Internet of Things industry.
Innovation business accounts for 16.46% of the company's total revenue. Although the proportion is still small, its astonishing growth rate is becoming an increasingly important source of growth for the company.
Revenue from innovative products in the first half of the year was 5.57837 billion yuan, an increase of 122.18% over the same period last year, of which EZVIZ network business revenue was 1.87111 billion yuan, an increase of 58.68% over the same period last year; robot business revenue was 1.22019 billion yuan, a year-on-year increase of 122.18%. An increase of 124.83% over the same period last year, and other innovative business revenue was 2.48707 billion yuan, an increase of 215.27% over the same period last year.
Hikvision’s current eight innovative business camps are EZVIZ Network, Hikvision Robotics (including machine vision), Hikvision Automotive Electronics, Hikvision Weiying (thermal imaging), and Hikvision Intelligence Storage, Hikvision Huiying (medical and education), Hikvision Fire Protection, Hikvision Ruiying (security inspection and industrial detection).
Among the eight innovative businesses, Hikvision Robotics, which accounts for the largest proportion, does not belong to the security field. Only some products of other innovative businesses are used in the security field. EZVIZ Network products, which account for the largest proportion of innovative businesses, only have a smaller proportion. Belongs to the security field. The two types of products that account for the largest proportion of innovative businesses should be classified as the Internet of Things industry.
Whether globally or domestically, the average annual growth rate of the security industry market has dropped below 10%, and the growth rate of the domestic security demand side market has begun to be smaller than the growth rate of the international security market. Hikvision’s main business has begun to transform from the security industry to the Internet of Things industry.
We believe that this will be conducive to the development of the enterprise, successfully break through the ceiling of the security industry market, and enter the Internet of Things industry with a broader market, so that the enterprise is expected to return to the average annual growth rate of revenue and profit exceeding 20% of the road.
Hikvision’s overall gross profit margin in the first half of 2021 was 46.30%, a decrease of 3.46 percentage points from the same period last year.
As a leading company, Hikvision has seized the commanding heights in the supply and demand of upstream security chips and other raw materials. After the epidemic, demand expanded, and the prices of chips and other raw materials increased. In particular, in response to US sanctions, the stocking of chips and other raw materials increased, which has a great impact on Hikvision. profit growth should help.
However, at Hikvision’s 2021 semi-annual performance explanation conference call, Ms. Huang Fanghong, the company’s senior deputy general manager and secretary of the board of directors, said when introducing the company’s gross profit margin situation that in the past 20 years, Hikvision The prices of our products have almost never increased. In order to maintain good competitiveness, the price increases of our products lag behind the fluctuations of raw materials.
Adjusting the sales price is a very cautious matter. The company is still relatively restrained in this aspect and hopes to properly handle the balance in all aspects. Secondly, some changes in the revenue structure (the proportion of products with lower gross profit margins increased) led to a decrease in gross profit margins.
The decline in gross profit margin of products sold overseas is the main factor affecting the company's decline in gross profit margin in the first half of this year.
From the semi-annual report, we can see that the company’s overseas revenue was 9.46748 billion yuan, an increase of 25.53% over the same period last year, accounting for 27.93% of the company’s total revenue, and the gross profit margin was 47.68%, a decrease over the same period last year. 8.06 percentage points. The gross profit margin of products sold domestically dropped only 1.28 percentage points.
The decline in gross profit margin will undoubtedly have a negative impact on the company's profit growth. However, in the first half of 2021, the company's sales expenses increased by 22.52%, administrative expenses increased by only 1.81%, and R&D investment increased by 26.58%.
The proportion of Hikvision's R&D expenses in revenue is increasing year by year, which reflects the company's insistence on taking technological innovation as its core, increasing R&D, and laying a solid foundation to meet opportunities and challenges. The growth of the three expenses is lower than the growth of operating income. In particular, administrative expenses are well controlled, which has a greater impact on corporate profit growth.
Compared with the 2020 annual report, the company's financial expenses have once again become a booster of profit growth. In the first half of this year, interest income was 412.00 million yuan, interest expenses were 110.61 million yuan, and exchange losses were 99.47 million yuan. Although exchange losses increased compared with the same period last year, financial expenses were still -122.52 million yuan, contributing to profit growth.
Hikvision has a high level of financial expense management. For example, the largest proportion of long-term credit loans at the end of the period was a credit loan of 400 million euros with a book value of RMB 3.07448 billion. This loan was mainly used for the investment and construction of the company's Hangzhou Innovation Industrial Park project and Xi'an Science and Technology Park project.
This is after the company repaid the 400 million euro 3-year bond issued on the Irish Exchange in February 2016, and signed a 400 million euro credit loan in 2019 with a maturity date of December 2021. On the 14th, the annual interest rate is 0.85%.
The company has reached a cooperation with China Development Bank Development Fund Co., Ltd., and only needs to pay investment income with an annualized rate of return of 1.2% to China Development Bank Development Fund through dividends, interest payments, etc. every year, as of June 2021. On the 30th, the China Development Bank Development Fund plans to increase its capital by RMB 190 million to Hikvision's subsidiary Hikvision Electronics Co., Ltd.
For another example, all rights and interests of the RMB 514 million in pledged loans are enjoyed by the Group under the "Xi'an Public Security Video Surveillance Construction Network Application Government-Private Partnership (PPP) Project Agreement" It was obtained by pledge, the maturity date is November 5, 2031, and the annual interest rate of the loan is 4.345%. There are many such pledged loans, and their interest rates are lower than the interest rates of long-term corporate loans.
The above-mentioned financing loans account for the vast majority of financing loans, and their interest rates are lower than the borrowing rates of other companies. For a long time, except for 2020 due to large exchange losses, Hikvision’s financial performance has been poor in other years. The fees are all negative.
The company’s second quarter net profit and net profit growth rate were affected by the timing of corporate income tax refunds for key software companies. The net profit in the second quarter included a tax refund of 570 million yuan.
According to past practice, the company usually receives and confirms the corporate income tax refund for key software in the third quarter. This year, due to adjustments to the tax refund-related procedures, the amount was changed to 570 million yuan in the second quarter, with a single book record. Income tax was negative. Excluding the impact of income tax refunds, the company's net profit in the first half of the year was 5.911 billion yuan, a year-on-year increase of 27.84%.
Hikvision’s important projects under construction in the first half of 2021 include Chengdu Science and Technology Park, Hangzhou Innovation Industrial Park, Xi’an Science and Technology Park, Shijiazhuang Science and Technology Park, Fluorite Industrialization Base, Zhengzhou Science and Technology Park, Chongqing The second phase of the science and technology park project, etc., completed an investment of 1.42524 billion yuan, an increase of 161.72% compared with the investment of 544.56 million yuan in important construction projects in the same period last year. In the past two years, the company has begun to increase the construction of multiple science and technology parks and industrial parks to accumulate strength for future development.