AI breakthrough! The 270 billion security "leader" takes the lead in "breaking through"

The certainty of AI is increasing, and new opportunities are emerging in the hardware sector.

Since the beginning of this year, leading companies in sub-sectors such as servers, data centers, communication equipment, and semiconductors have become market hotspots, with Shenghong Technology, New Ease, and Zhongji Innolight already becoming benchmarks in the A-share market.

Against this backdrop, the former "big brother" of security, Hikvision, has shown slightly lagging performance.

For Hikvision, the development of AI has brought a new wave of industrial intelligence, which has further promoted the development of the IoT industry. In this context, as a leader in the industry, Hikvision naturally enjoys the dividends of industry development ahead of others.

So, how large is the global IoT market?

According to IDC, global IoT market expenditure is expected to exceed $1 trillion by 2026.

As a representative enterprise in the smart IoT field, Hikvision's products and services cover more than 90 sub-industries and over 30,000 IoT products, with an average of 10,000 orders per day. Notably, 75% of these orders require customization. Under this structure, personalized requirements for product functions and configurations arise due to different application scenarios. Hikvision happens to meet this highly fragmented market demand and can directly link to the production end, forming an advantage of "multi-variety, small-batch, large-scale customization."

Reflected in performance, Hikvision's revenue is also very stable.

According to the financial report, in the first three quarters of this year, Hikvision's revenue reached 65.758 billion yuan, a year-on-year increase of 1.18%; net profit reached 9.319 billion yuan, a year-on-year increase of 14.94%. It should be noted that Hikvision's gross profit margin is as high as 45.37%.

Specifically, in the third quarter, Hikvision's revenue was 23.94 billion yuan; net profit reached 3.662 billion yuan, a year-on-year increase of over 20%, and non-GAAP net profit was 3.482 billion yuan, a year-on-year increase of 19.73%.

The "Big Brother" of Security

In the security market, whether domestically or globally, Hikvision undoubtedly holds a leading position.

According to media statistics, since 2011, Hikvision's market share in the security market has ranked first globally for 14 consecutive years.

From a sub-market perspective, according to ICSeeCam data, in the 2024 global security camera market, Hikvision's market share has reached 38%, firmly ranking first globally. In the analog security camera sector, Hikvision and another security giant, Dahua Technology, together account for over 25% of the market share, indicating that Hikvision is indeed "far ahead" in the security market.

Hikvision's current industry status is inseparable from the dividends of the security market's development over the years.

Data shows that Hikvision was founded in 2001. In its early days, the security technology and products were transitioning from MPEG1 to MPEG4. At that time, there was a strong demand for MPEG4 because, compared to MPEG1, MPEG4 could achieve higher compression efficiency and performance. Without compromising the quality of surveillance images, MPEG4 required less hard disk storage space and network transmission bandwidth.

Hikvision seized this opportunity and, after investing significant R&D resources, successfully launched video and audio boards and embedded network video recorders with independent intellectual property rights. With higher compression efficiency and reliable performance, these products quickly gained market favor, and Hikvision became the largest supplier of video and audio compression boards in China in a short time, with a market share once reaching 60%.

In May 2010, Hikvision was successfully listed on the Shenzhen Stock Exchange. At that time, the security industry was gradually evolving from analog to digital and from standard definition to high definition. With the support of the capital market, Hikvision began to vigorously expand its front-end camera business. In 2011, Hikvision's front-end audio and video product sales increased by 78% year-on-year, marking its successful expansion from back-end to front-end products. In the same year, Hikvision became the global leader in the video surveillance market for the first time and maintained this leading position for many years thereafter.

Against the backdrop of the "Skynet Project," which built a video surveillance network covering urban and rural areas nationwide, Hikvision began to soar.

By 2015, the implementation of the "Bright Project" extended the surveillance network from cities to rural areas, accompanied by intelligent upgrades of the system, including behavior analysis and license plate recognition functions, leading to another "surge" in demand for high-definition cameras.

From a financial perspective, Hikvision grew rapidly from 2010 to 2021, with revenue increasing from 3.605 billion yuan to 81.42 billion yuan, and net profit growing from 1.052 billion yuan to 16.8 billion yuan. Over 11 years, revenue increased by 22.5 times, and net profit grew by 16 times.

As its scale expanded, Hikvision's stock price also rose. In early 2021, Hikvision's market capitalization once exceeded 600 billion yuan, becoming the undisputed leader in technology stocks in the Shanghai and Shenzhen markets.

The Second Growth Curve

The decline in the main business's dividends has led Hikvision to seek a second growth curve.

According to Hikvision's disclosed data, the revenue of the Public Business Group (PBG) dropped from 7.717 billion yuan at its peak in mid-2021 to 5.573 billion yuan in the first half of this year. The revenue of the Small and Medium Business Group (SMBG) fell from 6.174 billion yuan at its peak in mid-2021 to 4.067 billion yuan in the first half of this year. The Enterprise Business Group (EBG) achieved slight growth during this period.

Analyzing the core Public Business Group, its revenue has declined from 19.161 billion yuan in 2021 to 13.467 billion yuan in 2024, shrinking by nearly 30% in four years.

The decline in these businesses, on one hand, is due to the decrease in demand for the original business, and on the other hand, has prompted Hikvision to rethink its future. Therefore, Hikvision has been actively expanding in new areas.

Data shows that in 2015, Hikvision issued the "Core Employee Follow-up Investment in Innovative Business Management Measures," gradually expanding into innovative businesses such as smart homes, robots, automotive electronics, and storage, transforming from traditional security to an AIoT integrated service provider. In the first half of this year, Hikvision's innovative business achieved revenue of 11.77 billion yuan, a year-on-year increase of 13.92%, accounting for 28.14% of total revenue. The growth of the innovative business has offset the impact of the decline in the main business, which is a very positive signal for Hikvision.

Of course, although the innovative business is developing well, it still needs time to replace the core main business products and services.

It is reported that Hikvision's innovative business is mainly focused on automotive electronics, smart homes, and storage, with significant future growth potential. Data shows that Hikvision is already one of the leading suppliers in the domestic front-loading sensor market, with main products covering visual radar and millimeter-wave radar.

Notably, with the development of AI, Hikvision has also turned its attention to the hottest AI large model sector. In previous financial reports, Hikvision mentioned that it has applied large model technology to 3D volumetric imaging, launching the Hikvision Guanlan large model, which is used in many of its products.

Overall, we believe that while Hikvision is consolidating its business scale, its profitability has also returned to double-digit growth. Moreover, the financial report clearly shows that Hikvision's growth model has shifted from revenue scale growth to high-quality revenue growth. In the future, as the global IoT economy enters deeper waters, the valuation of IoT leaders will likely be reconstructed, and as a leader, Hikvision will be the first to benefit.