State-Owned China Mobile Acquires 10% of Dahua

By Charles Rollet, Published Mar 29, 2021, 08:13am EDT

China's state-owned and largest telecommunications provider China Mobile has acquired 10.42% of Dahua (for nearly $1 billion USD), becoming Dahua's second-largest shareholder after Dahua founder Fu Liquan and his wife.

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This gives previously privately-owned Dahua substantial China government backing since China Mobile is a state-owned firm that shares the same ultimate parent as Hikvision.

In this post, IPVM examines this news and what it means for Dahua.

China Mobile Purchase Explained

In a March 26 announcement, Dahua disclosed that China Mobile is buying $853 million of Dahua stock giving it ownership of 10.42% of the company:

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Dahua issued new shares for this, diluting existing shareholders and receiving the investment directly.

Before the China Mobile investment, Fu Liquan and his wife Chen Ailing owned 36.56% of Dahua, and after the transaction, the pair now own 33.11% of Dahua, the disclosure stated, adding that there has been no change in controlling shareholder (Fu).

Discount For China Mobile

China Mobile received a significant discount, paying just 80% of the average price for Dahua stock from the last 20 days, at 17.94 yuan per share while Dahua's stock today trades at 24 yuan per share.

Often, investors pay premiums for acquiring such a significant share of companies (e.g., ADT/Google in 2020). However, China Mobile's power provides Dahua significant advantages within China.

Purpose Of Investment

Dahua said the ~$850 million of cash from this "strategic investment" has three main purposes.

  1. Achieving "win-win" cooperation with China Mobile. This section is vague, e.g. Dahua states it will "achieve technological upgrading of products through technical cooperation" with China Mobile.
  2. Providing working capital for various Dahua projects, including a new "Intelligent Manufacturing Base" in Hangzhou, a new R&D center in Southern China, and a Smart IoT Solution center.
  3. "Optimizing Dahua's capital structure" and reducing its asset-liability ratio, "thereby ensuring good profitability and operational stability".

China Mobile Background

China Mobile is China's largest telecom provider, with ~1 billion subscribers and about $117 billion in sales last year. Its dominance stems from the fact that it is state-owned, listed on the official directory of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC):

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SASAC is also the controlling shareholder of Hikvision, with SASAC entities controlling about 41% of the company, per its latest disclosure.

Analysis: Good For Dahua, Potential Hikvision Risk

In the shorter term, this cash infusion will certainly help Dahua improve its manufacturing and R&D capabilities, while technical cooperation with China Mobile could help Dahua improve its position in the 'Smart IoT' field.

Longer-term, the fact that the PRC government is now Dahua's second-largest shareholder means Dahua now has direct state backing, the one factor it lacked in its competition with Hikvision. This will help Dahua compete further with Hikvision, particularly in China's vast market for government security projects.

Confirms Earlier Reuters Reporting

Last September, Reuters reported that Alibaba and China Mobile were eyeing a $443 million investment into Dahua, claims that Dahua strongly disputed, even claiming it would "sue whoever reported this" (which it did not do). Reuters's reporting on China Mobile has been proven correct by this announcement. It is unclear whether Alibaba never considered investing in Dahua or subsequently decided not to do so.

Dahua Now Partially State Owned

One of Dahua's main counterarguments to overseas criticism is that unlike Hikvision it was not state-owned. Now, it partially is.

2 reports cite this report:

Dahua CEO Is Communist Party Secretary, Declares "Always Follow The Party" on Jun 14, 2021
Dahua CEO Fu Liquan, the Secretary of Dahua's Communist Party Committee,...
FCC Formally Proposes Prohibiting New Dahua and Hikvision Authorizations on Jun 01, 2021
The FCC is now proposing to ban new equipment authorizations of...

Comments (3)

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Along with substantial government backing, this new structure may help boost Dahua/China Mobile's collaboration in China safe city/surveillance projects, which we already know are massively profitable (e.g. $9 million Jiexiu won direct by Dahua, $46 million Zhengzhou- but won direct by Hikvision). This is because China Mobile also frequently bids and wins deals for safe city projects. For example, China Mobile won a ~400 million RMB (~$61 million USD) safe city project in 2019 for Nantong City.

However, China Mobile is not a camera manufacturer, so they must bid with cameras from domestic manufacturers (i.e. Dahua, Hikvision, Huawei, etc.).

IPVM has previously reported on Dahua and Hikvision winning direct, both over each other and Hikvision over other city IoT integrators. Direct deals from camera manufacturers are quite common, and so are deals won by the major China telecom companies (i.e. China Mobile, China Unicom, China Telecom). Now that China Mobile owns a significant portion of Dahua, Dahua could become an even bigger winner in safe city projects.

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Nice, informative article. Thank you.

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Now everyone who wondered why Dahua was included with the NDAA ban can finally have a good answer.

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