Hikvision: Improving quality and efficiency, layoffs are also a sharp tool

Hikvision released its third-quarter financial report for 2024 on the evening of October 25, 2024, Beijing time, with the following key points:

1. Revenue: In the third quarter of 2024, Hikvision achieved revenue of 23.8 billion RMB, a slight increase of 0.3% year-on-year. Although PBG, EBG, and other businesses continued to grow, the SMBG business experienced a significant decline, largely affected by economic factors;

2. Gross Profit and Expenses: Hikvision's gross profit margin in the third quarter of 2024 was 44.2%, a slight decrease of 0.1 percentage points year-on-year. While revenue and gross profit margin remained relatively stable, operating expenses for this quarter were 6.96 billion RMB, an increase of 7.5% year-on-year, maintaining at a relatively high level. Sales and research and development expenses were the main contributors to the increase in expenses;

3. Profit: In the third quarter of 2024, Hikvision achieved a profit of 3 billion RMB, a decrease of 13.4% year-on-year. The company's profit margin for this quarter was 13.7%, a decrease of 2.1%. Despite the relative stability of revenue and gross profit margin, the decline in the company's profit was mainly due to the growth in expenses.

Dolphin's overall view: Hikvision's financial report this time is not very good.

The recovery of company revenue and gross profit margin has once again stalled, and the profit side has shown continuous decline. This is mainly due to the company being affected by weak demand in downstream sectors, with a significant decline in the SMBG business in this quarter. Although the company intends to actively reduce supply chain inventory, the root cause lies in responding to the weak demand downstream.

However, how is the company's business currently performing? 1) Domestic business: PBG and EBG have shown growth, but it mainly depends on specific trends in government and real estate sectors; while the demand for SMBG business mainly reflects market and small and medium-sized enterprises' confidence; 2) Overseas business: Growth rate has declined, overseas markets have distinct regional and national characteristics, with demand continuing to decline due to restrictions in countries like the United States; 3) Innovative business: The growth sector that the company originally pinned its hopes on has also seen a decline in growth due to the impact of domestic demand.

Overall, the company's business is showing a situation of "softening of basic demand + declining growth momentum", facing significant pressure on the operational side. The subsequent recovery of some downstream sectors still needs to focus on the situation of government-enterprise funds, real estate industry, and overall market confidenceTherefore, the recent "layoffs" rumors are considered somewhat reasonable by Dolphin. Previously, the company has been continuously expanding its R&D personnel and related investments. However, with the current pressure on the company's performance, this has brought more pressure to the company. By integrating and optimizing internally, the company's operational efficiency can be further improved.

The company mainly focuses on "increasing revenue" and "cost reduction". In the current situation where "increasing revenue" is uncontrollable, by controlling costs, the company's performance is expected to stabilize again, bringing a more stable yield performance.

Here is Dolphin's specific analysis of Hikvision's financial report:

1. Revenue Situation

In the third quarter of 2024, Hikvision achieved a revenue of 23.4 billion yuan, a year-on-year increase of 0.3%. The company has many business lines, but there is a significant difference in growth among these business lines this quarter.

Specifically:

1) Domestic Main Business: ①PBG business achieved positive growth this quarter, and the growth is relatively direct due to the source of funding. This quarter, water conservancy, disaster relief, and other aspects received more support from the government, and the subsequent focus is on the issuance of special bonds; ②EBG business grew slightly this quarter, benefiting from the drive of digital demand such as reducing costs and increasing efficiency for enterprises; ③In contrast, SMBG business experienced a significant negative growth this quarter, mainly targeting small and medium-sized merchants, and the company also actively reduced inventory for distributors.

2) Overseas Main Business: Continued growth this quarter, but the growth rate has slowed significantly, greatly influenced by countries and regions. The Middle East business of the company grew rapidly, while countries such as the United States and Canada continued to experience negative growth.

3) Innovative Business: Affected by domestic demand, the growth rate has declined, with rapid growth in businesses such as micro-imaging, automotive electronics, and fire protection.

2. Gross Profit Margin Situation

In the third quarter of 2024, Hikvision achieved a gross profit of 10.5 billion yuan, a year-on-year increase of 0.2%. The growth rate of gross profit is close to the revenue side.

Hikvision's gross profit margin for this quarter was 44.2%, a year-on-year decrease of 0.1 percentage point. The company's gross profit margin remained relatively stable this quarter.

3. Core Expense Situation

Hikvision's core expenses mainly include sales expenses, management expenses, and R&D expenses. In the third quarter of 2024, Hikvision's total core expenses amounted to 6.96 billion yuan, a year-on-year increase of 7.5%. The core expense ratio reached 29.3%, a slight increase year-on-year, mainly due to the growth in sales and R&D expenses.

1) Sales Expenses: The company's sales expenses this quarter were 3.124 billion yuan, an 11% increase year-on-year. The sales expense ratio this quarter was 13.1%, an increase of 1.2 percentage points year-on-year. In a relatively weak situation such as government and enterprise procurement, the company increased its sales-related expenditures;2) Management Expenses: The company's management expenses in this quarter were 798 million yuan, a year-on-year increase of 3.6%. The management expense ratio for this quarter was 3.4%, an increase of 0.2 percentage points year-on-year;

3) Research and Development Expenses: The company's research and development expenses in this quarter were 3.038 billion yuan, a year-on-year increase of 5.2%. The research and development expense ratio for this quarter was 12.8%, an increase of 0.6 percentage points year-on-year. Despite relatively weak revenue at the company's end, the company still maintains a high level of research and development investment. The high operating expenses situation has also laid hidden risks for the company. As rumors of "company layoffs" surfaced some time ago, Dolphin believes that these rumors are somewhat reasonable. With pressure on the company's performance end, while research and development personnel and related expenses continue to rise, this is clearly not sustainable.

4. Net Profit attributable to Shareholders

Hikvision achieved a net profit attributable to shareholders of 3.04 billion yuan in the third quarter of 2024, a year-on-year decrease of 13.4%. The company's net profit margin for this quarter was 13.7%, a decrease of 2.1 percentage points year-on-year. Although revenue increased slightly by 0.3%, the impact of expense increases and other factors led to a slight decline in the company's profit for this quarter.

Dolphin's related articles on Hikvision:

In-depth

December 22, 2021 "Hikvision (Part 2): Copying Zhang Kun's homework, will it be harvested?"

December 14, 2021 "Hikvision (Part 1): Countering the trend to increase holdings in the "security moat," what is Zhang Kun betting on?"

Financial Report Season

August 17, 2024 Financial Report Review "Hikvision: Both government and enterprises are having a hard time, the "security moat" does not have "equipment renewal""

April 20, 2024 Financial Report Review "Hikvision: "Security Moat," can it catch the AI ​​express lane?"

October 20, 2023 Financial Report Review "Hikvision: "Security Moat" rises and falls again"

August 18, 2023 Financial Report Review "Hikvision: Security leader, when will new infrastructure investments arrive?"

Financial Report Review on April 15, 2023: "Hikvision: How to Withstand the Decline Without Layoffs?"

Financial Report Review on October 28, 2022: "Hikvision's Across-the-Board Collapse, Is the Leader in Security Industry Excluded from the New Infrastructure Investment?"

Conference Call on August 14, 2022: "Short-term Impact of the Epidemic, Economic Slowdown is the Mastermind (Hikvision 22Q2 Conference Call)"

Financial Report Review on August 13, 2022: "Another White Horse Stumbles, Can Hikvision Turn the Tables This Time?"

Conference Call on April 21, 2022: "Hikvision's 2022 Outlook, How Does the Management View It? (Conference Call Summary)"

Financial Report Review on April 16, 2022: "Hikvision: Inflation Plus Epidemic, Pressuring the 'Security Fort'"

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