Hikvision Alert:Access China conference highlights 2017

Hikvision believes there was demand recovery in 2016, mainly driven bythe public safety and transportation segments. The growth from SME andthe financial industry were milder. The company expects the strength frompublic safety and transportation to sustain into 2017. We expect Hikvisionto deliver a sales growth of 29.5%/26.3%/24.6% in 2016/2017/2018,respectively.

    The company’s overseas business contributes to 25-30% of the revenue,with US consists of 25-30% of the oversea’s business. Managementestimated 30-40% growth in 2016 with higher than corporate averagemargin due to less competition. Currently, the solution business onlyaccounts for 15-20% of the overseas business and the managementtargets to increase the solution business contribution.

    Hikvision noted a stabilizing margin in 2016 due to 1) demand recoverywhich reduces the competition, 2) improving product mix as public safetyand transportation segments generate higher margin, 3) the company’sfocus on profitability by adding margin performance as management KPI,compared to the prior evaluation on revenue growth only. We expect GPMof 40.6%/40.0%/39.5% in 2016/2017/2018, respectively.

    Given the trend of AI (artificial intelligence) smart city, Hikvision hasdevoted its R&D resources in data analytics such as facial recognition andlicense plate recognition. The company has further expanded its R&Dengineers from 7,181 in 2015 to approximately 9,000 in 2016, with themajority of the team being the software engineers. The R&D spendingcould enable Hikvision to capture the rising trend, secure leadership andprovide more value-add to its clients.