Hikvision Financial Performance and Product Sales Examined 2011

Chinese manufacturer Hikvision continues to grow rapidly and is now one of the largest video surveillance companies in the world. However, it is generally unclear who Hikvision is selling to and how much of what are they selling. In this note, we examine details of Hikvision's financial progress and breakdown sales to better understand the company's positioning.

Let's start with a review of key Hikvision metrics from their H1 2011 financial report (Chinese language only):

• H1 2011 sales are ~$2 Billion RMB, approximately $300 Million USD. Annual run rate is over $600 Million USD.
• Sales growth year over year is just under 50% - a massive amount given their already large size already
• Total profit is $600 Million RMB, approximately $100 Million USD. Profit margin is ~30% - a very high margin for the industry (where 20% is considered quite good)
• Rebounding stock price: After falling to as low as 33 RMB per share, stock price has risen 42% to 47 RMB per share
• Market capitalization of over $7 Billion USD 500% greater than Axis which has a market valuation of ~$1.2 Billion USD

Hikvision is obviously quite large, richly valued and apparently very profitable. And, unlike peer CSST, who has declining sales and serious questions about their future, Hikvision is moving up sharply.

The question for Hikvision, still remains what is it they are selling and to whom. The same report provides some key sales metrics:

• About 50% of Hikvision revenue comes from back end products like recorders, storage, etc. - ~$300 Million USD per year
• About 35% of Hikvision revenue comes from front end products, i.e., cameras - ~$200 Million USD
• Front end revenue grew 77% compared to last year (up from ~$110 Million to $200 Million) while back end products only grew ~21%
• Sales inside China accounted for ~82% of Hikivsion revenue while International sales are less than 20%. China sales were up nearly 50% significantly outpacing International sales that grew ~36%

While recorders remain the majority of Hikvision revenue, cameras sales are growing very fast. However, the overwhelming majority of all Hikvision sales are in China and that proportion is actually growing. As a Chinese domestic provider, Hikvision is at 1/2 Billion USD but as an international supplier, the number is about $100 Million or a little greater. Their non-China sales are at similar levels to NICE, March and Verint - sizeable companies but not as large as Axis, Pelco, Panasonic, etc.

The sharp increase in front end / cameras sales is very interesting. Hikvision is best known for its DVRs which we have tested and found to be competitive both in price and quality. However, from what we have seen so far of their cameras, significant quality concerns remain both from our own test last year and from multiple integrators feedback last month [link no longer available].

Undoubtedly, Hikvision is an important company to track but the company's overall massive size should be balanced with a recognition of their China focused revenue / market success.