PRC Government Increases Hikvision Ownership

By: Charles Rollet, Published on Nov 12, 2018

The PRC government - Hikvision's controlling shareholder - is increasing its ownership of the video surveillance giant amid sharp stock price declines, the US considering sanctions, and Hikvision's president saying they are focusing on survival.

IPVM Image

In this note, we examine this move and how sustainable such a strategy is given unprecedented scrutiny over PRc government influence in video surveillance.

Context: Hikvision Stock Price Crash

Hikvision’s stock price has fallen from an all-time high of 44 yuan in March to 26.35 yuan, a decrease of 40%:

IPVM Image

This was not only because of Hikvision-specific factors like decelerating sales growth, the NDAA ban, and possible sanctions, but also broader trends like tariffs caused by the US-China trade war.

Worried PRC investors asked Hikvision [link no longer available] whether any “measures to maintain the stability of the stock price” were coming.

[Update: Monday, Nov 12th, PRC stocks increased as the PRC government says it will make it easier for PRC companies to buy back their own stocks. Hikvision went from 26.35 to 27.78 on that news.]

China Government Steps In

Get Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

On October 24, Hikvision announced [link no longer available] an "increase in our controlling shareholder's stake in the company" after an entity called CETCIH bought about $4m worth of shares and pledged to buy $21m to $42m worth of stock over the next six months.

CETCIH (CETC Investment Holdings) is the finance/venture capital arm of the CETC, Hikvision's controlling shareholder and a fully PRC government-owned military and defense conglomerate. The CETC, who created and controls Hikvision, owns over 40% of Hikvision. (Hikvision PRC Government Owner CETHIK Exposed.)

CETCIH exists mainly to "strengthen market value" of the CETC's businesses by "making full use of the internal resources of the group company," according to its own website, [link no longer available]which also has a specific section devoted to [Communist] "Party building" activities [link no longer available].

Help From The Family

JRJ, a top PRC financial media outlet, reported that this was a way for Hikvision’s “family” – i.e. the state-owned CETC – to “maintain” its flagging share price.

This share purchase does not change Hikvision's controlling shareholder but sends a signal to investors that the PRC government is standing behind Hikvision during this downturn.

While Hikvision has denied the CETC's influence on its operations, as the DC-based think tank Asia Society recently wrote in a report on PRC state-owned enterprises, “investors know that the ultimate locus of decision-making is at the group company level, not the listed company level”. In Hikvision's case, the "group company" level would be the CETC, while the "listed company" is Hikvision.

"Absolutely Not Sustainable" In the Long Term

Christopher Balding, a professor at Fulbright University in Vietnam and China economy expert, said via email that such purchases were "relatively standard operating procedure" during "stressful periods in the market."

However, Balding said that while such measures may work "as a way to prop up the stock", in the long run "it is absolutely not sustainable" due to already high levels of PRC government spending on the economy.

Past Government Help

The PRC government's move to directly support Hikvision's stock is only the latest way that the company has benefited from the PRC government, something Hikvision's overseas leadership has denied but has been admitted to elsewhere. In a 2016 bond prospectus, Hikvision listed "strong support from PRC government and our state-owned parent" as a "competitive strength." The firm also touted "substantial fiscal subsidies" and free land from the government. (Hikvision: PRC Government "Exert Significant Influence Over Our Business").

Benefits

The benefits of the PRC government’s support to Hikvision are obvious. It shows that the PRC government stands by Hikvision when turmoil hits the markets. It also gives Hikvision a strong advantage domestically, given that its closest rival Dahua is a private company.

Dahua has not received the level of direct government support – like outright share buying from a state-owned parent company – as Hikvision. That’s partly why Dahua’s stock price has crashed even harder this year than Hikvision’s, falling by almost 60% from a high of 30 yuan ($4.33) to around 13 yuan ($1.88).

(Dahua's overall market cap is about $5.3 billion to Hikvision's $36 billion.)

IPVM Image

Risks

However, continued and increasing PRC government ownership has risks. Global scrutiny of Hikvision over possible espionage and human rights is increasing, particularly due to its PRC state backing.

Global media and governments have focused on Hikvision's government ownership as a potential national security issue. This contributed to the US government banning federal purchases of Hikvision equipment and the Australian military's promise to remove all Hikvision cameras on its bases.

Meanwhile, Dahua has no qualms about promoting the fact that it is not China government-owned, in an attempt to shake off concerns over its products. (Dahua Ban Response: NOT China Government Owned).

Conclusion

It remains to be seen if the PRC government's strategy will pay off for Hikvision. On the one hand, having a powerful, authoritarian government on your side can help during difficult times. On the other, increased PRC government ownership will heighten concerns over government influence at a time of unprecedented scrutiny.

1 report cite this report:

The 2019 Video Surveillance Industry Guide on Dec 10, 2018
The 300 page, 2019 Video Surveillance Industry Guide, covers the key events and the future of the video surveillance market, is now available,...
Comments (13) : Members only. Login. or Join.

Related Reports

Hikvision Global News Reports Directory on Jun 18, 2020
Hikvision has received the most global news reporting of any video surveillance company, ever, ranging from the WSJ, the Financial Times, Reuters,...
NetPosa's Terrible Situation Worsens on May 19, 2020
NetPosa is fighting for its existence as the situation worsens for what was once the PRC's largest VMS provider. The firm is being investigated by...
The Booming Multi-Billion Coronavirus Fever Camera Market on Apr 21, 2020
The market for elevated body temperature detection cameras, aka 'coronavirus cameras' aka 'fever detectors', may be worth billions of dollars this...
Top Manufacturers Gaining and Losing 2019 on Nov 18, 2019
2019 has been an explosive year for video surveillance, with the world's two largest manufacturers, Dahua and Hikvision, being sanctioned for human...
NetPosa Revenue Plunges 90% on Nov 04, 2019
Revenue for China's long-time largest VMS provider NetPosa plunged 90% in the latest quarter, adding to the firm's serious financial...
Government-Owned Hikvision Wants To Keep Politics Out Of Security on Oct 21, 2019
'Politics' made Hikvision the goliath it is today. It was PRC China 'politics' that created Hikvision, funded it, and blocked its foreign...
US Considers Sanctions Against Hikvision and Dahua on May 22, 2019
The US government is considering blacklisting "up to 5" PRC surveillance firms, including Hikvision and Dahua, Bloomberg reported, with human...
Surging Wyze Raises $20 Million, Threat To Chinese Brands on Feb 01, 2019
The Seattle Startup that is disrupting consumer IP cameras with $20 pricing has just raised $20 million dollars (SEC Filing and company press...
Hikvision President Addresses AI and USA Challenges on Oct 31, 2018
In frank recent China interviews, Hikvision's President Hu Yangzhong has addressed challenges impacting the video surveillance industry and...
French National Police Buy 10,400 Hikvision Body Cameras on May 31, 2018
France’s national police forces bought 10,400 Hikvision body cameras earlier this year, in a high-profile deal that’s coming into effect as the...

Most Recent Industry Reports

Verkada: "IPVM Should Never Be Your Source of News" on Jul 02, 2020
Verkada was unhappy with IPVM's recent coverage declaring that reading IPVM is 'not a good look' and that 'IPVM should never be your source of...
Vintra Presents FulcrumAI Face Recognition on Jul 02, 2020
Vintra presented its FulcrumAI face recognition and mask detection offering at the May 2020 IPVM Startups show. Inside this report: A...
Uniview Wrist Temperature Reader Tested on Jul 02, 2020
Uniview is promoting measuring wrist temperatures whereas most others are just offering forehead or inner canthus measurements. But how well does...
Dahua USA Admits Thermal Solutions "Qualify As Medical Devices" on Jul 02, 2020
Dahua USA has issued a press release admitting a controversial point in the industry but an obvious one to the US FDA, that the thermal temperature...
Access Control Online Show - July 2020 - With 40+ Manufacturers - Register Now on Jul 01, 2020
IPVM is excited to announce our July 2020 Access Control Show. With 40+ companies presenting across 4 days, this is a unique opportunity to hear...
Hanwha Face Mask Detection Tested on Jul 01, 2020
Face mask detection or, more specifically lack-of-face-mask detection, is an expanding offering in the midst of coronavirus. Hanwha in partnership...
UK Government Says Fever Cameras "Unsuitable" on Jul 01, 2020
The UK government's medical device regulator, MHRA, told IPVM that fever-seeking thermal cameras are "unsuitable for this purpose" and recommends...
Camera Course Summer 2020 on Jun 30, 2020
This is the only independent surveillance camera course, based on in-depth product and technology testing. Lots of manufacturer training...
Worst Over But Integrators Still Dealing With Coronavirus Problems (June Statistics) on Jun 30, 2020
While numbers of integrators very impacted by Coronavirus continue to drop, most are still moderately dealing with the pandemic's problems, June...