Hikvision spun off Hikvision robot to go public: price for volume to seize the market, R&D expense rate halved within two years

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Recently, the listing application of Hikrobot was accepted by the Growth Enterprise Market of the Shenzhen Stock Exchange. This means that Hikvision will become the third listed company of the "Hikvision series" after Hikvision and Fluorite Network.

Similar to Fluorite Network, Hikrobot backed by Hikvision's "big tree" has achieved rapid growth in revenue in recent years, but its related party procurement amount once accounted for more than 80%. At the time of filing the prospectus, the company also had an asset restructuring transaction to transfer its drone business unit to Hikvision.

Hikrobot focuses on the development, sales and related services of machine vision and mobile robot products, which continue to increase their market share. However, this is the result of sacrificing product prices in exchange for the market, and in recent years, the average price and overall consolidated gross margin of both businesses have declined.

As a technology-driven and technology-intensive industry, Hikrobot's R&D investment has increased year by year in recent years, with a cumulative R&D investment of 1.154 billion yuan from 2019 to 2021. But at the same time, its R&D expense ratio showed a downward trend, from 34.11% in 2019 to 16.27% in 2021, almost halved.

Hikvision holds 60% of the shares, and the proportion of related party procurement amount is decreasing year by year

Hikvision robot is one of Hikvision's innovative businesses. Since 2015, Hikvision has encouraged internal employees to innovate and start businesses, established an internal innovation follow-up investment system, and established 8 innovative businesses.

In recent years, Hikvision has continued to make efforts in eight innovative businesses, which were once considered its second growth point, which refers to Fluorite Network, Hikrobot Robot, Hikvision Automotive Technology, Hikvision Micro Shadow, Hikvision Storage, Hikvision Vision, Hikvision Fire Protection and Hikvision Security Inspection and other businesses and corresponding products.

Among them, Fluorite Network has been listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange in December 2022. In the same month, Hikvision released a revised draft of the plan for spinning off its subsidiary Hikrobot to be listed on the Growth Enterprise Market of the Shenzhen Stock Exchange.

According to the equity information disclosed in the prospectus, Hikvision is the direct controlling shareholder of Hikvision and holds 60% of the company's equity.

Previously, during the IPO process of Fluorite Network, the issue of related party transactions with related parties such as Hikvision was mainly questioned. The related party transactions of Hikrobot cannot be ignored.

According to the prospectus, in the first three quarters of 2019-2021 and 2022 (hereinafter referred to as the "Reporting Period"), the proportion of Hikrobot's purchase amount from related parties to the total procurement in each period was 82.61%, 66.34%, 12.41% and 9.55%, respectively; The proportion of the company's sales to related parties in the operating income of each period was 10.88%, 7.72%, 5.10% and 3.92%, respectively.

Among them, some of the information systems used by Hikvision are also Hikvision's information systems, and the "System Authorization Agreement" has been signed with Hikvision, which clearly stipulates the rights and obligations of both parties during the authorized use of the information system.

Hikrobot said that it maintained a relatively stable business cooperative relationship with related parties, and the proportion of related party procurement and related sales showed a downward trend during the reporting period, and various related party transactions were necessary and fair. However, if the relevant decision-making and approval procedures are not fulfilled in the future related party transactions or cannot be executed in strict accordance with the fair price, or Hikvision cannot continue to provide the above services or products, it may affect the company's normal production and business activities, thereby harming the interests of the company and shareholders.

The drone business accounted for more than 7% of the profit and was to be transferred to Hikvision

The related party transactions between Hikrobot and Hikvision do not stop there, at present, Hikvision also has an asset restructuring situation, and intends to transfer the entire UAV business unit to Hikvision, and the transaction is still in progress as of the signing date of the prospectus.

It is reported that as of the signing date of the prospectus, the asset restructuring is still subject to the state-owned asset approval procedures of CETC. After the completion of the asset restructuring, Hikrobot will no longer be engaged in the research and development, production and sales of UAV products.

According to reports, Hikvision UAV business is self-developed and produces UAV and UAV defense system products, which has covered police security, forestry protection, emergency management, urban management municipal, power and petroleum and other industries.

Hikrobot explained that since UAV products are mainly used in the security field, the research and development, production and sales of related products are relatively independent of the company's machine vision and mobile robot business, but they are closely related to Hikvision's downstream customer application scenarios, so during the reporting period, they were mainly sold to the outside world through Hikvision and its subsidiaries.

In order to further focus on its main business, reduce related party transactions with Hikvision, and improve the independence of Hikvision's production and operation, it intends to transfer the overall evaluation price of the UAV business unit to Hikvision with July 31, 2022 as the evaluation reference date.

Hikrobot disclosed the comparison of the audited simulation report of the drone business in 2021, the main financial data and the corresponding financial indicators of Hikrobot. Although in 2021, its drone business accounted for less than 3% of revenue, its total profit accounted for 7.2%.

Hikrobot said that the total audited assets, operating income and total profit of its drone business in 2021 did not exceed 10% of its corresponding projects, and the transaction would not constitute a major asset restructuring, and the main business had not undergone major changes after the completion of the restructuring.

In recent years, the compound growth rate of revenue has exceeded 70%, and the net cash flow from operating activities has been negative for many years

It can be said that the revenue and net profit of Hikvision Robot, which is backed by Hikvision, have achieved rapid growth in the past three years. From 2019 to 2021, Hikrobot achieved revenue of 941 million yuan, 1.525 billion yuan and 2.768 billion yuan, respectively, with a three-year compound growth rate of 71.48%, and achieved revenue of 2.81 billion yuan in the first three quarters of 2022.

From 2019 to 2021, the company achieved net profits attributable to the parent of 45.4786 million yuan, 65.0964 million yuan and 482 million yuan, respectively. After calculation, its net profit in 2021 was as high as 640.71% year-on-year.

Hikrobot said that the net profit attributable to the owner of the parent company in 2020 and 2021 (calculated based on the lower before and after deducting non-recurring profit and loss) was 50.3503 million yuan and 390 million yuan, respectively, reaching a cumulative amount of 442 million yuan, meeting the requirements of "positive net profit in the past two years, and the cumulative net profit is not less than 50 million yuan" in the listing standards.

However, it is worth noting that during the reporting period, the net cash flow of Hikrobot operating activities was -138 million yuan, 103 million yuan, -325 million yuan and -398 million yuan, respectively. That is, except for FY2020, the net cash flow from operating activities was negative for all periods.

In this regard, Hikrobot explained that the main reason is that with the continuous expansion of the company's production and operation scale, the purchase of raw materials and product stocking have increased correspondingly, accounts receivable have also increased, and there is a certain time difference between upstream and downstream payment and collection settlement. In addition, the company continues to expand its workforce, paying more employee compensation and increasing cash outflow from operating activities.

This time, Hikrobot plans to raise 6 billion yuan, and after deducting the issuance expenses, more than 900 million yuan will be used to supplement liquidity.

The overall average price and comprehensive gross profit margin of the main products have declined, and the market is seized by price for volume

In terms of specific business, Hikrobot said in the prospectus that it is one of the enterprises with strong comprehensive research and development strength in China, and has always focused on the development, sales and related services of machine vision and mobile robot products in recent years, and has become a leading machine vision and mobile robot enterprise in China.

According to data from GGII, the prospectus quotes that from 2019 to 2021, the size of China's machine vision market will be 8.006 billion yuan, 9.412 billion yuan and 13.816 billion yuan, respectively; The market size of the mobile robot market is 4.013 billion yuan, 5.21 billion yuan, and 7.812 billion yuan. According to this calculation, the market share of Hikrobot is 6.16%, 10.12% and 12.46% for machine vision; Mobile robots were 8.3%, 8.55%, 11.76%.

It can be seen that in the environment of rapid growth of the overall market scale, the market share of the two core products of Hikrobot is still increasing year by year. However, it is worth noting that this market share growth has been achieved on the basis of the decline in the average price of its products.

According to the prospectus, in each period of the reporting period, the average prices of Hikrobot machine vision products were 1549.69 yuan, 1452.16 yuan, 1441.33 yuan and 1472.22 yuan, and the average prices of mobile robot products were 78,900 yuan, 66,000 yuan, 73,800 yuan and 72,100 yuan respectively.

It can be seen that the average price of the two core products of Hikrobot decreased during the reporting period, of which the average price of products in 2020 decreased by 6.29% and 16.38% year-on-year, respectively.

In this regard, Hikrobot explained that the small fluctuation in the price of machine vision products is mainly caused by changes in product structure. For the fluctuation of the average price of mobile robot products, Hikrobot explained that it was mainly caused by the change of product structure and the price of products showing a certain price reduction trend during the reporting period. As the main source of revenue of Hikrobot mobile robot business, the fluctuation of the average price of the latent series has a decisive impact on the average price of the mobile robot business as a whole.

Hikrobot admitted that the average price of mobile robots in 2020 was slightly lower than that of the previous two years, mainly because in order to expand its market share, the company appropriately reduced the price of the latent series and increased the promotion of economic products, which lowered the overall average price.

The price reduction of products has also had a certain impact on the gross profit margin of Hikrobot.

In each period of the reporting period, the gross profit margin of Hikrobot's main business remained at a high level, 53.85%, 44.55%, 44.28% and 44.18%, respectively, but the overall decline was low, and the decline in 2022 compared with 2019 was nearly 10 percentage points.

Hikrobot said that the gross profit margin of its main business in 2019 was relatively high, on the one hand, because the computer software revenue accounted for a relatively high gross profit margin of 100% in 2019, which increased the company's comprehensive gross profit margin; On the other hand, the two main businesses, machine vision business and mobile robot business, both had higher gross margins in 2019.

During the reporting period, the comprehensive gross profit margin of Hikrobot mobile robot business was 49.45%, 42.89%, 38.61% and 34.63%, showing a downward trend year by year, one of the main reasons is the intensification of competition in the mobile robot industry, and the sales price of various series of products is gradually declining.

The R&D expense ratio will be halved within two years

With the continuous development of industrial automation technology, machine vision has more and more applications in the industrial field. From the perspective of the global market, MarketsandMarkets data shows that the global machine vision market size in 2021 will be about 80.4 billion yuan, a year-on-year increase of 12.15%. GGII expects the market to exceed 120 billion yuan by 2025. The compound growth rate from 2022 to 2025 is about 13%.

On the other hand, globally, with technological innovation and industrial revolution, the mobile robot industry has achieved rapid development. According to GGII statistics, the global mobile robot market size will be about 21.55 billion yuan in 2021, a year-on-year increase of 43.28%, and the market size is expected to exceed 100 billion yuan by 2026.

Since its establishment in 2016, Hikrobot has focused on the field of machine vision and mobile robots, and is one of the earliest Chinese enterprises to lay out machine vision and mobile robot business at the same time, and spares no effort in research and development. During the reporting period, the company's R&D expenses increased year by year, and the cumulative R&D investment from 2019 to 2021 was 1.154 billion yuan.

However, it is worth noting that its R&D expense ratio has fallen sharply year by year. During the reporting period, the proportion of R&D investment to operating income reached 34.11%, 25.09%, 16.27% and 17.04% respectively, which has been reduced in 2021 compared with 2019.

The machine vision and mobile robot industries in which Hikrobot is located are technology-driven and technology-intensive industries, and the corresponding products cover computer science, artificial intelligence, image processing, machinery and automation and other disciplines, which have frequent technological innovation, high upfront investment and great uncertainty.

At the same time, the downstream application fields of Hikrobot include 3C electronics, new energy, automotive, medicine and medical, semiconductor, express logistics, e-commerce retail and other industries, its application demand is also in a high-speed iteration period, technology iteration and product innovation are frequent, so whether it can accurately judge the development trend of the industry, forward-looking technology research and development layout and efficient technology into product landing, so as to meet the diversified needs of customers, is the key to success in the industry competition.

In recent years, with the development wave of industrial automation and intelligent manufacturing, the industry demand and market scale of the above businesses, especially the demand and market scale of China, have continued to expand, which not only makes the world's leading competitors in the original industry such as Keyence, Cognex and AUTOSTORE form competitive pressure on the company's product sales in terms of product performance and price, but also attracts a large number of domestic listed companies and emerging manufacturers to enter related fields, such as Opt, Lingyunguang, Jizhijia, HAI ROBOTICS, etc.

In this environment, Hikrobot also admitted that it will face a more fierce competitive environment in the future. It remains to be seen what kind of performance it will perform by then.