Hikvision's steady growth in the third quarter is expected to exceed the previous year's growth rate in the fourth quarter

Hikvision announced the 2011 third quarterly report on October 12. From January to September, the company's total operating income was 3.45 billion yuan, up 44.30% year-on-year; operating profit was 984 million yuan, up 42.23% year-on-year; net profit attributable to shareholders of listed companies 869 million yuan, a year-on-year increase of 32.58%. Among them, the third quarter revenue 1.371 billion yuan, an increase of 38.35%, an increase of 19%; the net profit attributable to listed companies was 342 million yuan, an increase of 21.36%, an increase of 28.28%. From January to September, EPS was 0.87 yuan, and EPS was 0.34 yuan in the third quarter, slightly lower than our previous expectations.

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Main Financial Indicators: The Company's revenue in the third quarter was 1.371 billion yuan, which was basically the same as our previous forecast. The gross profit margin was 50.57%, which represented an increase of 0.79 percentage point from the same period of last year, which was 1 percentage point lower than our forecast. In the third quarter, the company's three-item cost rate was 20.00%, which was a year-on-year increase of 1.68 percentage points and a decrease of 2.82 percentage points from the previous quarter. The inventory turnover days were 65 days, an increase of 21 days compared with the same period of last year and an increase of 2 days from the second quarter, and remained at normal levels.

Revenue growth comes from the front end, and the consolidated gross profit margin is stable: This year is the front end of Hikvision's heavy volume. The revenue growth in the third quarter was mainly contributed by front-end products. According to our split measure, front-end revenues have increased by more than 70%. The gross profit margin remained relatively stable, but it was about 1.5 points lower than in the second quarter. Our analysis may be due to the increase in the proportion of low-end products in the sales of back-end products since the second half of the year. With the expansion, the three expense rates increased: In the third quarter, sales expenses increased by 57.59% compared with the same period of last year, mainly because the company is increasing its investment in domestic and overseas sales networks. The administrative expenses increased by 57.12% over the same period of last year, mainly due to increased R&D investment.

The net profit was slightly lower than expected, which was mainly due to the decrease in non-operating income: The 2011 software VAT tax rebate has not yet been officially implemented, resulting in a 45.63% decrease in non-operating income of Hai Kang Weishi’s current period compared to the same period of last year. Get tax rebate, at least contribute 30 million net profit.

It is expected that the growth rate in the fourth quarter will exceed the previous year: security equipment vendors have obvious seasonal characteristics, and generally the fourth quarter will have higher revenue than the first three quarters. We believe that in the fourth quarter of this year, there will be greater growth than in previous years. There are two reasons: 1) Changes in sales model. The sales model of the company includes product sales and project systems (the product sales system receives revenue after the product is sold; the project system will wait for the project to return after the project ends, and the refund will generally be concentrated in the fourth quarter), and the sales of the project will increase this year. Therefore, this is also the reason that the growth in revenue in the third quarter was smaller than that in previous years. (In the third quarter of last year, revenue increased by 38% qoq, only 19% this year. It can be understood that this part of the increase will be filled in the fourth quarter). 2) Tax refund. In 2011, the VAT refund tax will be implemented in the fourth quarter. We roughly estimate that it will contribute more than 100 million non-operating income. Based on the above analysis, we forecast revenue of 1.9 billion yuan in the fourth quarter and net profit of about 600 million yuan.

Earnings Forecast and Investment Rating: As the leading domestic security industry, the back-end products have occupied a relatively high market share and maintained steady growth. Front-end products are the main driving force for growth in recent years. In the long run, the company achieved the integration of vertical industry chains through acquisitions and achieved great security, reflecting the height and vision of industry leaders. We slightly adjusted the company's earnings per share from 2011 to 2013 to 1.49, 1.98, and 2.57 yuan, and maintained the company's "recommended" rating.