Hikvision Research Report: Digital Economy Aircraft Carrier Sets Sail, AI Writes a New Chapter

(Report producer/author: Northeast Securities, Wu Yuanheng)

1. The global leader in intelligent IoT, an aircraft carrier in the era of digital economy

1.1. The business continues to evolve and upgrade, and eventually becomes the world's first leader in intelligent IoT

From a security enterprise to an "intelligent IoT AIOT" technology giant, to build a digital economy aircraft carrier. Hikvision is a video as the core intelligent Internet of Things solution and big data service provider, the company was founded in 2001, the initial production and sales of boards, DVR business. In 2010, Hikvision was listed on the Shenzhen Stock Exchange, with industry solutions as the core, extending its tentacles to the Internet field, and the company began to enter the stage of network high-definition. In 2013, the company's revenue exceeded 10 billion, in 2015, the company moved towards the intelligent stage, began to expand the machine vision and robot business, in 2016 the company seized the video surveillance intelligence-AI opportunity period, launched a series of intelligent products based on GPU/VPU and deep learning technology, and a variety of innovative businesses have landed. In 2017, Hikvision proposed the concept of AI Cloud, and in 2018, the company completed the restructuring of the business organization structure and proposed the data architecture of AI Cloud IoT integration. In 2019, the company ranked first in the world in the video surveillance industry for many years, released the data platform of IoT integration, and developed and increased innovative business. In 2021, Hikvision focuses on "intelligent IoT AIOT", and is committed to serving thousands of industries with IoT sensing, artificial intelligence, and big data technology, leading the new future of intelligent IoT. In the field of comprehensive security, according to the Omdia report, the company has ranked first in the world in the video surveillance industry for 8 consecutive years, with a global video surveillance market share of 24.1%; In A&S's "Global Security 50" list, the company has ranked first for four consecutive years.

1.2. CETC's largest subsidiary, a model of state-owned listed enterprises

The actual controller is CLP, and the background of the central enterprise has built a strong resource endowment. As of the third quarter of 2022, the company's largest shareholder is CLP Hikang, with a shareholding ratio of 36.08%, and the actual controller of the company is CETC Group (CETC), which holds a total of 40.46% through CLP Hikang, Electric Technology Investment and 52 Companies. CLP is an important state-owned backbone enterprise directly managed by the central authorities, focusing on the three major positioning responsibilities of "the main force of military electronics, the national team of the network information industry, and the national strategic scientific and technological force," and laying out the four major sectors of "electronic equipment, network information system, industrial foundation, and network security." The company started with the security business, and the revenue of 2G services such as big security and big traffic accounted for a relatively high proportion in the early stage, and the background of central enterprises built strong resource endowments.

1.3. Domestic business develops steadily, overseas business returns to growth, and innovative business escorts the mothership forward

Since 2018, the company has divided its main business into three business groups: Public Service Group (PBG), Enterprise Group (EBG) and Domestic Small and Medium-sized Enterprise Group (SMBG). PBG's main downstream customers are pan-government agencies, which developed steadily from 2018 to 2021. Based on traditional public security, transportation, and justice, and focusing on urban governance and urban services, PBG has provided government users with system solutions for up to 346 different business scenarios by the end of 2021. PBG growth is mainly related to government investment, PBG development from 2018 to 2021 is stable, revenue CAGR is 8.58%, in 2018 the proportion of revenue in the three domestic businesses is much higher than other businesses, 45.80%, with the continuous efforts of EBG and SMBG, the proportion of revenue tends to decline.

EBG mainly serves large enterprise customers, is an important growth pole for the company's domestic business, and is about to develop a resilient revenue scale to catch up with PBG. Based on the four business units of traditional finance, energy, buildings, culture, education and health, EBG mainly provides market services for traditional large-scale enterprises, and meets the vertical operation and management needs of the group enterprises. As of 2021, Hikvision has cooperated with more than 1,000 ecosystem partners to jointly develop more than 13,000 intelligent applications, and will continue to promote the digitalization of thousands of industries in the future. EBG is an important growth pole for the company, with rapid development from 2018 to 2021, with a revenue CAGR of 17.85%, and the proportion of revenue gradually increased from 31.10% in 2018 to 33.70% in 2021, and H1 in 2022 showed strong resilience in the epidemic environment, revenue still maintained positive growth, revenue accounted for 34%, and revenue contribution tended to be comparable to PBG. Relying on a strong channel system and organizational capabilities, SMBG's revenue from 2018 to 2021 CAGR was 21.18%. Based on the traditional channel distribution management team, SMBG focuses on small and medium-sized enterprise market services, and strives to build an industrial ecology and platform integrating product distribution, installation and operation and maintenance services, and SaaS sharing. Relying on a strong channel ecosystem, the company's SMBG business has developed rapidly, with a CAGR of 21.18% in revenue from 2018 to 2021, and the proportion of revenue increased from 23.20% in 2018 to 27.40% in 2021.

The construction of smart cities in ASEAN, the Middle East and other places is prosperous, and the global marketing network layout has made efforts to overseas business. The key deployment areas of smart cities have gradually shifted from developed countries or regions such as Europe, the United States, New Japan and South Korea to China, India, Vietnam, ASEAN, the Middle East and other countries or regions, and smart cities in ASEAN/Middle East countries or regions have entered a period of intensive deployment. By the end of 2021, the company has set up 66 sales branches and service organizations overseas, 11 logistics centers, covering more than 150 countries and regions. Globally, the company has reached cooperative relations with more than 6,000 distributors, 10,000 integrators, 300,000 engineers, 400,000 installers, and more than 1,000 service providers to provide products and services for the majority of users. Under the layout of the global marketing network, the CAGR of the company's overseas business revenue from 2018 to 2021 was 15.71%, and the H1 overseas market in 2022 gradually recovered from the epidemic, and the revenue reached 11.713 billion yuan, with a year-on-year growth rate of 23.72%.

The co-investment mechanism and strong technology accumulation have created eight innovative businesses, which have become a strong support for the company's long-term development. Hikvision's continuous accumulation of technical reserves and growing business tentacles provide a good soil for the development of innovative business. With video technology as the core, the company has expanded to smart home, robot, fire fighting, security inspection, automotive electronics and other applications. Up to now, the company's innovative business camp includes eight sub-businesses, including fluorite network, Hikrobot and Hikvision automotive electronics, Hikvision microimage, Hikvision intelligent storage, Hikvision fire protection, Hikvision and Hikvision, involving eight fields such as smart home, robot, automotive, thermal imaging, storage, fire protection, security inspection, and medical treatment. The good development of innovative business has continuously injected new impetus into the company's long-term sustainable development. From 2018 to 2021, the CAGR of the company's innovation business revenue was 65.70%, and it still increased by 25.62% in the H1 epidemic environment in 2022, and the proportion of revenue increased to 18.81%, which became an important driving force for the company's growth.

1.4. The profitability level is expected to return to stable territory in the future due to the decline of the chip/labor influence stage

From 2015 to 2021, revenue and profit continued to grow rapidly, and the performance in 2022 was affected by the epidemic and showed short-term fluctuations. Benefiting from the high prosperity of security construction promoted by domestic smart city and Xueliang engineering policies, the digital transformation needs of large enterprises, the complete channel ecological layout, and overseas business expansion, the company's revenue CAGR was 21.53% from 2015 to 2021, and the net profit attributable to the parent was CAGR 19.16%. In 2022, the situation at home and abroad is complex and changeable, and the operating environment is facing multiple uncertainties, and the company achieved operating income of 83.174 billion yuan, a year-on-year increase of 2.15%; The net profit attributable to the parent was 12.827 billion yuan, down 23.65% year-on-year.

The net interest rate fluctuates in the short term, strict fee control measures + active optimization of personnel + chip supply tightness slows down, and the net interest rate is expected to return to 20%+. With the continuous launch of new products and the increase in industry concentration, the company's leading position has been continuously highlighted, and the company's gross profit margin has continued to improve from 2015 to 2020. From 2020 to 2021, due to the impact of the epidemic, the tight chip supply chain, and the rapid growth of personnel, the company's gross profit margin and net profit margin fluctuated in the short term. In 2021, the company's personnel increased by 23.6% to 52,700, superimposed on the impact of the epidemic, which put certain pressure on the net profit margin in 2022, and the net profit margin in 2022 fell to 15.42%. We believe that from 2022Q4 to 2023, the company will adopt stricter fee control measures and actively optimize personnel, while chip supply tensions will ease, and the net profit margin is expected to return to 20%+ in 2023.

2.AI Empower the main business and boost downstream demand from the domestic economic recovery

2.1. PBG: Government spending bottoms out, and AI participation in the digital transformation of social governance opens up new space

PBG's business empowers public safety, transportation, and more, and as of 2021, more than 120 solutions have been developed to meet the business needs of various industries. 2021 is the first year of the 14th Five-Year Plan, the government's digital reform presents an intensive and scientific construction trend of "unified construction of perception, unified management of one network, unified operation and maintenance, digital intelligence empowerment, and promotion of construction with use". Smart business in ecological and environmental protection fields empowers the digital transformation of public service industries and cities. As of 2021, the company has formed more than 120 industry software that adapts to the business needs of various industries, providing rich scenario-based intelligent applications. At the edge node and edge domain, the collaborative linkage application of highly agile and intelligent devices is deepened. In the cloud center, for public safety, social governance, transportation, epidemic prevention and control, natural resources, ecological protection and other fields, it has deepened intelligent applications such as the management of the three guarantees in front of the door, intelligent monitoring of small reservoir safety, supervision of the whole life cycle of solid waste, intelligent monitoring of water quality, etc., which have been put into practice in hundreds of cities, hundreds of sub-industries, and thousands of scenarios across the country, and have helped important activities such as the Beijing Winter Olympics, Hangzhou Asian Games, and the 14th Games.

Build a perception base and build visualized, intelligent, and three-dimensional perception capabilities. Hikvision continues to make efforts in the technical direction of electromagnetic spectrum sensing, intelligent IoT products extend from visible light to infrared, X-ray, millimeter wave and other multi-spectrum, from video surveillance to multi-dimensional perception, from traditional human and vehicle perception to all-factor perception, hatching a number of heavyweight new products in the industry, such as dual-cabin all-in-one machine, hyperspectral water quality multi-parameter monitor, Hikvision all-in-one machine, intelligent security detector, etc., enabling various industries to quickly build visualized, intelligent and three-dimensional perception capabilities. The intelligent base and data base have accumulated hundreds of intelligent algorithms and data models that fit the industry business, covering most business scenarios in the public service field. Based on Hikvision's technological innovation in artificial intelligence and big data, it provides customers with a wealth of hardware products, software platforms, intelligent algorithms and data models. Hikvision Digital Intelligence Software family lineage is growing day by day, and has formed basic software such as "two pools, three libraries, seven platforms, one screen and one environment", as well as more than 70 general software in 10 categories, such as visual command and alarm management. For example, taking the perception fusion empowerment platform as an example, the platform empowers users in various segments of the public service field through the capabilities of point co-construction, resource sharing, algorithm co-management, computing power integration, capability sharing, and event co-governance, and also precipitates hundreds of intelligent algorithms and data models that fit the industry business, covering most business scenarios in the public service field.

In the field of grassroots governance, the company's solutions are expected to effectively solve the problems of traditional town and street grassroots management, grassroots law enforcement, and grassroots services. Hikvision continues to go deep into the subdivided scenes of grassroots towns and streets, and joins hands with users of grassroots units in many towns and streets across the country to carry out in-depth practical implementation of the application of public security, transportation, urban management, emergency, civil affairs and other industries at the grassroots level, and has accumulated hundreds of application items such as early warning and judgment of incidents, command and dispatch management, improvement of the living environment, fire supervision of town streets, and care services for the elderly, effectively solving the problems of traditional town and street grassroots management, grassroots law enforcement, grassroots services, and department coordination, and gradually forming an active, forward-looking, preventive, and other problems. The new closed-loop grassroots management mode comprehensively improves the intelligent management level of town streets.

Companies in the field of emergency management provide overall capacity to prevent and deal with emergencies. Aiming at the safety production risks of hazardous chemicals, fireworks, non-coal mines, tailings reservoirs and all kinds of small and micro enterprises, we provide applications such as data access, data analysis, intelligent early warning, hierarchical push, and information backup to effectively solve the pain points of user supervision and build an efficient safety production monitoring and early warning system. At the same time, for forest fires, flood disasters, geological disasters and other natural disasters, it provides all-factor comprehensive monitoring, disaster early warning, comprehensive risk assessment, disaster evolution situation analysis and other applications, comprehensively consolidates the foundation of disaster prevention and mitigation, and builds a sound natural disaster monitoring and early warning system. In addition, for sudden accidents and disasters, it provides full-process emergency command and dispatch capabilities, including core applications such as on-duty duty, plan management, coordinated consultation, command and scheduling, summary and evaluation, etc., to help users improve emergency handling and rescue capabilities, reduce disaster damage, and build a complete emergency command and rescue system.

The emergency safety industry is booming, and the average annual growth rate of the industry is expected to be 15% from 2020 to 2025. In order to improve the mainland's disaster prevention and emergency management capabilities, in 2018, the Ministry of Emergency Management of the People's Republic of China was established, and various provinces and cities successively laid out the construction of urban security risk comprehensive monitoring and early warning platforms, and in 2021, policy documents such as the "Measures for the Management of National Security Emergency Industry Demonstration Bases (Trial)" and "+Fourth Five" National Emergency Response System Planning were released successively. According to Toubao Research Institute, China's emergency solutions market size in 2020 was about 4.89 billion yuan, and the market size is expected to reach 9.7 billion yuan in 2025, with a CAGR of 14.8% from 2020 to 2025.

In the field of urban transportation, the company creates value for traffic police users in the fields of intelligence research and judgment, command and dispatch, safety control and order optimization. In the field of urban traffic management, Hikvision provides intelligent information control capabilities such as single-point adaptive control, dynamic/static trunk green wave control and regional coordinated control based on real-time traffic parameter perception, supports tidal lanes, variable lanes, roundabouts, and provides city-level traffic situation research and judgment, intersection problem diagnosis, traffic flow traceability, traffic simulation, intelligent guidance, vehicle traffic management, real-world command, intelligence analysis and judgment, intelligent service research and judgment, key vehicle traffic guarantee, green parking and other professional intelligent travel service capabilities. Among them, in the field of information control After years of hard work, Hikvision achieved nearly 10,000 signal machine shipments in 2021, ranking at the forefront of the industry; In 2021, the company upgraded the diagnosis of intersection problems, expanding from the previous single intersection signal configuration diagnosis to the diagnosis of comprehensive problems such as signals, organization, and abnormal events of intersections + road sections, which is more practical; The "Digital Intelligence Traffic Management Base" integrates the basic capabilities commonly used in the field of intelligent traffic management, such as perception access, data governance operation, model operation, road network calculation, and theme library, and provides a cost-effective solution choice for customers and users to jointly solve traffic management problems with its openness and professionalism.

The company's highway solutions take "reducing accidents, ensuring smooth flow, improving efficiency, and promoting services" as the core goal. The high-speed highway motor vehicle illegal behavior detection and recording system solution automatically determines the illegal behavior of the target vehicle through the intelligent sensing front end for illegal parking, wrong-way driving, low-speed/overspeeding, occupying emergency lanes, long-distance solid line lane changes, large trucks occupying fast lanes and other illegal behaviors on highways, and makes complete records of motor vehicle violations in accordance with evidence collection specifications. The high-speed traffic safety management system solution strengthens the intelligent monitoring and timely warning of high-speed accidents, dangerous drivers, key vehicles, and bad weather, and explores the causes of traffic accidents in multiple dimensions around "people, vehicles, roads, and the environment". Strengthen the management of potential safety hazards in key road sections, key vehicles, key drivers, and key weather where traffic accidents occur frequently, so as to make expressways safer.

According to the "14th Five-Year Plan for the Development of China's Security Industry (2021-2025)", the average annual growth rate of the security industry is expected to be 7%, driving the average annual growth rate of the company's PBG business is expected to reach 7-8%. In June 2022, the China Security and Protection Products Industry Association issued the "14th Five-Year Plan for the Development of China's Security Industry (2021-2025)", proposing to continue to promote the follow-up construction of safe city, Xueliang project and other projects, taking new infrastructure as an opportunity, taking "intelligent construction, intelligent connection, intelligent use, intelligent defense, intelligent service" as the main line, effectively improving the level of intelligent application, and comprehensively serving the needs of national, industry, and civil security projects, and the average annual growth rate of the security market during the "14th Five-Year Plan" period reached about 7%, and the whole industry in 2025 The total market volume reached more than 1 trillion yuan. We believe that with the government's leverage, economic recovery, government investment strengthening, and the vigorous construction of intelligent transportation, grassroots governance, highways, tunnels and subways in the post-epidemic era, the average annual growth rate of the company's PBG business is expected to reach 7-8%.

2.2. EBG: AI applications open up growth ceilings, and open platforms improve the scale effect of fragmented scenarios

2.2.1 The industrial digital space is huge, and the intelligent transformation of security opens up the growth ceiling

In 2021, the digital scale of mainland industries increased by 17% year-on-year, and the Internet of Things has become the core methodology of digital transformation. The development of industrial digitalization has entered an accelerated track, and traditional agriculture, industry and service industries are applying digital technology to increase output, improve efficiency, and enhance greening and carbon footprint reduction in the process of industrial development. According to data from the Academy of Information and Communications Technology, China's industrial digitalization reached 37.2 trillion yuan by the end of 2021, a year-on-year increase of 17.2%, accounting for 32.5% of GDP. All walks of life have fully recognized the importance of developing the digital economy, the Internet of Things has become the core methodology of digital transformation, the digital transformation of the service industry continues to be active, and the digital transformation of agriculture has begun to bear fruit.

The awareness of digital transformation of enterprises has increased, and more than 60% of enterprises have been in the stage of partial promotion or strategic planning and implementation. In 2022, the China Enterprise Confederation and the China Academy of Information and Communications Technology jointly carried out the "2022 Smart Enterprise Construction Status Questionnaire" survey, showing that enterprises' acceptance of digitalization has increased significantly, 66.3% of the interviewed enterprises are already in the stage of partial promotion or strategic planning implementation, according to Accenture's "China Enterprise Digital Transformation Index Research", 67% of enterprise management said that the primary growth driver in the future will come from "digital technology + business", from iResearch Consulting statistics from March 2022-6 In terms of monthly manufacturing bidding situation, enterprises are the strongest demanders, accounting for 90.2%, of which the overall procurement of hardware equipment is the mainstay, accounting for nearly eighty percent.

The scope of data empowerment has evolved to wide coverage, and the proportion of data self-optimization stage has increased significantly compared with last year. According to the CAICT "China Smart Enterprise Development Report" (2022), with the continuous enhancement of AI technology, data empowerment has evolved from data acquisition, transmission, and analysis to automatic prediction, autonomous decision-making and self-optimization, and the scope of data empowerment has evolved from a single point to wide coverage, currently concentrated in the real-time analysis stage, and the proportion of self-optimization stage has increased significantly compared with last year, and will continue to evolve to a wider range and higher stage in the future.

With the iteration of technology, the demand evolves to the dynamic analysis of video content, and the pan-security space expands. With the development of a new generation of information technology such as 5G, AI, and IoT, the demand for security products has changed from the original high-definition video recording and basic static face recognition to the dynamic analysis application of video content, including but not limited to: portrait recognition, video analysis, live detection, object recognition, which has promoted the original single-function security products to extend to all aspects of people's production and life, and began to integrate with telecommunications, transportation, construction, property and other industries. The demand for security products has shifted from simple hardware deployment to products and solutions with video networking and AI visual perception technology as the core. The industry space of pan-security has expanded, breaking the ceiling of the traditional security industry. With sensing devices as the entry point, relying on the fusion of data by information technology, AI capabilities are used to promote the implementation of applications. The company takes sensory equipment as the entry point, relies on intelligent perception technology and IoT data to build scene intelligent IoT and equipment and facility IoT, forms data aggregation, analysis and mining capabilities with the help of IoT fusion data, and promotes the closed-loop landing of intelligent applications through AI engineering capabilities. At the same time, based on rich industry experience, the company has built a smart pin application empowerment platform for smart parks and cloud-eye enterprise-level SaaS services for chain users, and continues to innovate in digital energy, intelligent manufacturing, education and teaching, financial services, digital villages, smart healthcare, smart communities, cultural tourism, smart construction sites, retail chains, smart logistics and other industries, and continuously improve industry insights.

Provide an all-factor global perception intelligent IoT product system, and build vertical products in energy, community and other industries. Relying on multi-dimensional perception technology to build an all-factor global perception product system, the company has gradually built an industry vertical product system in coal, electric power, community, education and other fields, and better integrated equipment into the deployment environment in diversified product forms. Specific products such as: anti-corrosion camera, with special structure design to improve equipment tightness, applied to offshore wind power equipment condition monitoring; The high-temperature and high-appearance machine is used in front of the furnace observation and molten steel slag to realize the visualization of the operation process in a harsh environment; Intelligent applications are deeply integrated with business processes, and ecosystem partners are actively empowered to establish AI technology teams and jointly develop 13,000+ intelligent applications with partners. The company actively explores the common path of AI empowerment, deeply integrates intelligent applications with business processes to form a closed loop of intelligent application services, and opens the HCA-AIOPE (Hikvision Certified AI Open Platform Algorithm Engineer) technology certification system to empower ecological partners to establish AI technology teams. The company continues to improve its AI engineering capabilities to serve users in education, electric power, chemical, agriculture, food and other industries, such as In the energy industry, under the technical route of AI+ automatic control system, applications such as automatic belt correction and dynamic adjustment of fan speed have matured; In the logistics industry, AI-enabled AGVs improve the flexible scheduling capabilities of robots. By the end of 2021, the company had cooperated with more than 1,000 ecological partners to jointly develop more than 13,000 intelligent applications and promote the digitalization of thousands of industries.

Combined with rich industry experience, a smart application empowerment platform for smart parks has been built. Huipin Application Empowerment Platform: Relying on a unified software architecture, the company launched the Huipin Application Empowerment Platform, which provides modular component services based on low-code engine + componentization technology, which can easily and quickly build digital business landing. Taking inspection engine products as an example, in 2021, it will widely serve thousands of users in energy, finance, manufacturing, construction, education and other industries, enabling the rapid construction of application scenarios such as property inspection, equipment inspection, and production line inspection. The platform can widely serve industry users such as enterprise parks, chemical parks, campus scenic spots, industrial parks, etc., such as in the enterprise park management scenario, integrating low-code engine capabilities such as processes, work orders, and reports, and forming the full life cycle management capabilities of equipment such as spot inspection, repair, maintenance, scrapping, spare parts, and ledgers.

Combine rich industry experience to build enterprise-level SaaS services for chained users. Hikvision Cloud is a public cloud application service platform launched for the large chain operation model, combined with Hikvision AI open platform, to provide users with a complete value delivery link from a single scenario to global digital management. In 2018, Hikvision was officially launched, providing SaaS cloud services for the retail chain industry to help solve the problem of online management of video equipment in chain stores. From 2018 to 2021, the number of users served by Yunxian and the number of devices connected to continue to grow, and the application fields continued to expand, extending from the retail chain industry to a wider range of sub-industries such as community, general education, logistics, construction sites, agriculture, etc., and developed into an enterprise market cloud platform that provides SaaS and PaaS capabilities, helping enterprises improve marketing and management efficiency and lower the threshold of digital transformation. For example, in the chain store scenario, Yunxian combines AI technology to provide a closed-loop application of intelligent identification, traceability and statistics of cash register risks, improving store management efficiency. By the end of 2021, CloudVision had been used in more than 40,000 office spaces, 280,000 retail stores, 600,000 logistics nodes, serving 4.16 million community owners and 3.5 million parents of students, and accessing 2.5 million device terminals.

Relying on a strong sales network and sinking channels, the company has accumulated a wide range of industry and scenario experience, multi-dimensional data, and constantly widened the moat. The key points of the application effect of intelligent solutions are the matching with actual services and the quantity and quality of training data in related scenarios. We believe that Hikvision has accumulated a wide range of industry and scenario experience through sales networks and sinking channels throughout major cities, deeply close to users and markets, and at the same time, the company's terminal vision products have accumulated rich data and formed a data flywheel, so as to continuously strengthen the practicality and effectiveness of the algorithm and gradually form solution advantages.

2.2.2 Continue to invest in iterative AI technology to build an open platform to improve the scale effect in fragmented scenarios

R&D investment continues to be high, and it has repeatedly embraced new technologies for strategic evolution. Hikvision has always attached great importance to technology investment, and R&D expenditure usually accounts for about 10% of revenue, with an investment amount of 8.252 billion yuan in 2022, while the number of R&D personnel accounts for nearly half of the overall employees. The company's executives have a strong technical background, 26 of the 28 founding employees are from technical backgrounds, sensitive to new technologies, and have repeatedly embraced new technologies for strategic evolution in the company's history. In 2016, the company first proposed itself as a video-centric IoT solution and data operations service provider. Subsequently, the company mentioned the breakthrough of artificial intelligence technology in the video field and the possibility of landing, and proposed the concept of digital intelligence fusion, combining AI with perceptual big data to achieve perceptual intelligence, and combining AI with multi-dimensional big data to achieve cognitive intelligence.

Vision products have accumulated rich data and formed a data flywheel, thereby continuously strengthening the practicality and effectiveness of algorithms and gradually forming solution advantages. 2.2.2 Continue to invest in iterative AI technology, build an open platform, and improve the scale effect in fragmented scenarios R&D investment continues to be high, and it has repeatedly embraced new technologies for strategic evolution. Hikvision has always attached great importance to technology investment, and R&D expenditure usually accounts for about 10% of revenue, with an investment amount of 8.252 billion yuan in 2022, while the number of R&D personnel accounts for nearly half of the overall employees. The company's executives have a strong technical background, 26 of the 28 founding employees are from technical backgrounds, sensitive to new technologies, and have repeatedly embraced new technologies for strategic evolution in the company's history. In 2016, the company first proposed itself as a video-centric IoT solution and data operations service provider. Subsequently, the company mentioned the breakthrough of artificial intelligence technology in the video field and the possibility of landing, and proposed the concept of digital intelligence fusion, combining AI with perceptual big data to achieve perceptual intelligence, and combining AI with multi-dimensional big data to achieve cognitive intelligence.

Use the unified software technology architecture to complete the reconstruction of software products, and reduce the integration and cooperation costs caused by the opening of different systems. In 2019, Hikvision continued to use the unified software technology architecture to complete the reconstruction of software products, and the software asset library precipitated a large number of software achievements, all products were built based on a unified architecture, and each software product could also be compatible and collaborative with each other, minimizing the integration and collaboration costs caused by the opening up between different systems. Hikvision Intelligent Application Open Platform provides four development frameworks, more than 1,500 open interfaces, more than 1,100 common components, and a total of 278 software platform products including basic software, general software and industry software.

The company's basic software platform can be summarized as "two pools, three libraries, seven platforms and one environment". "Two pools" refers to the computing and storage resource pool and data resource pool, including edge cloud and central cloud computing platform, cloud storage platform, and big data foundation platform; "Three libraries" refers to the component warehouse, algorithm warehouse, and model warehouse, which support the management and reuse of components, algorithms, and models respectively; The "seven platforms" refer to the resource management and scheduling platform, intelligent perception networking platform, AI open platform, sensory fusion empowerment platform, information fusion data resource platform, intelligent application open platform, and integrated operation and maintenance service platform, which provide storage and computing resource scheduling, equipment access networking, intelligent algorithm training, intelligent service release, data aggregation governance, intelligent application development, and integrated operation and maintenance service capabilities for various intelligent application scenarios. "One environment" refers to the four-dimensional spatial operation environment, that is, the virtual space-time operating environment corresponding to the physical world, which supports the storage, correlation and analysis of perception resources and data resources in the same space-time environment. The original "one screen", that is, the large-screen visualization application development tool is organically integrated with the "one environment", which supports the configuration of visual applications and the association with data in the case of zero coding, and realizes the multi-way visual display of data in the same temporal and spatial environment. The general software platform provides common software functions across multiple industries, including general security, visual command, alarm management, inspection supervision, meeting interaction, content release, etc. Taking the visual command general software platform as an example, including AR high-point video networking platform, AR reality map application platform, AR reality command platform, VR panoramic application platform, converged communication application platform, mobile law enforcement comprehensive management platform, etc.

It provides services to more than 70 sub-industries and gradually forms more than 200 application software platforms. Taking the traffic police industry as an example, it provides a traffic violation management platform, a comprehensive traffic control platform, an urban traffic situation analysis and judgment platform, a traffic accident research and judgment platform, a comprehensive law enforcement case management platform, a high-speed traffic safety monitoring and governance platform, an intelligent checkpoint application platform, and a vehicle driving management video intelligent inspection platform.

The AI open platform provides a one-stop algorithm training platform for fragmented industry application scenarios, and has the ability to train high-precision algorithms based on small sample data. Support AI development and application from multiple dimensions such as data, algorithms, computing power, hardware, and systems, build a one-stop service for the whole process from scenario application demand generation, scheme design, algorithm implementation, model deployment and application landing, and provide an ecological market. The AI open platform is easy to operate, and through the process of sample data collection, online data annotation, and online algorithm training, targeted intelligent algorithms can be obtained, which can be deployed to Hikvision's rich hardware devices. By the end of 2021, the AI Open Platform had served more than 8,000 enterprise users, generated 50,000+ models, and accumulated more than 4,000 landing projects. Building an open platform expands the platform's business processing capabilities and improves the reusability of software R&D results. We believe that the company's construction of an open platform expands Hikvision's platform business processing capabilities and comprehensive algorithm level, and at the same time uses the model warehouse to build a warehouse, algorithm warehouse, and model warehouse according to the general functions of the scene, so as to improve the reusability of software research and development results.

2.3. SMBG: Closely related to the macroeconomy, demand fragmentation highlights the value of channels

Economic fluctuations and technological iteration have accelerated the digital transformation of small and medium-sized enterprises, and there is a strong demand for pan-security IoT equipment, business-friendly, timely and effective services. Pressure and motivation intertwined with epidemic control, economic fluctuations, policy guidance, and technological iteration have prompted small and medium-sized enterprises to seek changes in the opposite and accelerate digital transformation and upgrading. According to iResearch, the market size of digital upgrade services for small and medium-sized enterprises in 2022 will be 330 billion, with a broad market space. According to the China Electronics Standardization Institute, 79% of SMEs' digital transformation is still in the initial exploration stage. The essence of the digitalization of small and medium-sized enterprises is to improve the efficiency of production and operation, on the one hand, small and medium-sized enterprise users need pan-security IoT equipment to open up the scene as a data basis, on the other hand, they need to fit the business, timely and effective services, digital demand continues to emerge. The needs of small and medium-sized enterprises are fragmented and integrated, and many engineers serving small and medium-sized enterprises have low efficiency and high implementation costs. The user needs of small and medium-sized enterprises have four characteristics: (1) scene fragmentation has various subdivision forms; (2) It needs to include the overall design planning and complete system solutions of pre-sales, sales, installation and after-sales; (3) On the basis of safety and stability, it is not only visible, but also clearly seen and understood; (4) Integrate multiple subsystems to form integrated management. Hikvision provides customers with more professional support and empowerment to fully respond to various segmented scenarios. At present, the engineering group that provides products and services for small and medium-sized enterprises has low efficiency in reaching users and obtaining business opportunities, and the cost of project implementation, operation and maintenance, and management is high, and the demand of engineering enterprises for digital marketing capabilities is becoming more and more urgent.

Online and offline linkage, offline reach business, online digital marketing, procurement, cloud management equipment, remote maintenance. The company adopts the strategy of online and offline linkage development, sinks offline business tentacles, and launches two major platforms of Hikvision Cloud Business and Hikvision Internet online, combining online stores with offline stores to provide system support for pre-sales, sales and after-sales, providing customers with more convenient full-journey services integrating demand submission, program consultation, survey and design, commodity sales, delivery, operation and maintenance, and improving industry management efficiency and user experience through Hikvision cloud management equipment and remote operation and maintenance. The online company provides channel digitization, engineering workbench, SME service platform and ecological cooperation open platform. Hikvision has built a pan-security industry Internet product matrix, consisting of two main line platforms, Hikvision Internet and Hikvision Cloud Business, providing a channel digital platform, an engineering workbench, a small and medium-sized enterprise user service platform and an ecological cooperation open platform. Hikvision is positioned in the B2C link, providing one-stop scenario-based solutions, online interaction and content marketing for SME customers, helping Hikvision's partners such as engineers and installers to complete business implementation efficiently. Hikcloud agreed to be located in the (F+B)2B link to help dealers connect with practitioners, provide a variety of capabilities such as linking professional content, linking customers, linking employees, and business analysis, helping suppliers and dealers improve their professional capabilities, promote digital transformation, and help them better market.

Hikvision provides one-stop sub-scenario solutions for small and medium-sized enterprises such as equipment management and solution application. Hikvision Internet provides a service platform for small and medium-sized enterprise users, integrating device management, solution application, cloud-edge integration, content shopping guide and value-added services to provide one-stop sub-scenario solutions. The platform can access video, access control, intercom, fire protection, transmission and other major products, including nearly 10,000 SKUs, linking millions of devices, supporting the access and control of various intelligent devices with an open architecture, and supporting third-party business plug-ins in a componentized development mode. The platform builds a SaaS solution suite around scenarios such as residential areas, offices, shops, and factory parks, and realizes value-added services through subscription-based services. Based on the Hikvision interconnection platform, the company has derived an open platform for ecological cooperation, relying on the power of ecological partners to realize the expansion of solutions in vertical subdivided industries and horizontal business fields. Hikvision Engineering Platform provides equipment management, project management and tools & service capabilities to precipitate project data, improve the efficiency of engineering business, and help engineers achieve long-term business revenue.

Hikvision Cloud is a one-stop security transaction service platform integrating information, transactions, services and tools. Hikvision Cloud Merchant provides a digital platform for channel customers, empowers the majority of security practitioners, integrates supply chain empowerment, marketing empowerment, tool provision and service operation, builds a marketing service system, helps the digitalization of the industrial chain, and realizes online business; The platform relies on digital marketing tools to realize online employees and users online, precipitate business data assets and analyze them, and support decision-making with data.

Offline: The company's senior management attaches great importance to the healthy development of the dealer system and actively protects the interests of dealers. After 2018, the company's domestic distribution channel management department has taken a series of measures and continuously introduced new policies to crack down on price control, speculation, regional collusion, etc., actively protect the interests of distributors and promote the healthy development of the distribution market. At the same time, the company's senior management pays great attention to the future trend of the distribution market, actively meets with dealers across the country, jointly sorts out, discusses the previous problems, and formulates relevant standards, and resolutely maintains the healthy development of the distribution market; In addition, dealers who violate the rules will be punished in accordance with the management measures, and those who seriously violate the rules will be disqualified and the punishment will be increased. The company's senior management actively communicates with dealers to jointly solve problems such as high inventory and ecological benefit distribution. The company's senior management actively meets with distributors, regularly understands the business situation, receivables management, cash management, inventory control and other issues, and actively solves them. For example, with high inventory, Hikvision will make good use of the "hive" warehousing logistics to optimize resources, revitalize inventory, reduce operating costs, and reduce market risks. In addition, for example, in response to the phenomenon that dealers are both distributing products and engineering projects, the company proposes a variety of business balances.

The company regularly organizes dealer training to improve the management ability of dealers. Hikvision always adheres to customer-centricity, shares technologies, products, solutions, services and other resources with partners, promotes digital end-to-end operations, builds digital intelligence capabilities of the global ecosystem, and empowers the digital transformation of small and medium-sized enterprises. Open up the transaction link, realize the integration of procurement and marketing, and build nearly ten Hikvision Hive logistics centers to realize the whole process from order to distribution online. In terms of digital supply chain, it will open up the transaction links of the company's production, channel customers, engineers and small and medium-sized enterprise users, and realize the integration of procurement and marketing. At present, nearly ten Hikvision Hive logistics centers have been built across the country, realizing the whole process from order to delivery online, reducing costs and preventing losses, releasing the energy of channel customers, and focusing on improving marketing capabilities; Comprehensive online management of invoicing, sales and inventory data to help improve inventory management efficiency; The intelligent sorting capacity is improved, which ensures the distribution efficiency during the tight supply period; Intelligent forecasting/channel BI system is improved to improve forecast accuracy and data governance capabilities.

The channel system covers most prefecture-level cities in China, with complete construction, hierarchical management, ecological health, and prominent channel value. In 2018, the company carried out the construction of provincial business centers, set up secondary branches under key cities, and sank sales, R&D, technical support and other resources to the first line, and business development and response were closer to customers. As of 2021, Hikvision has built 32 provincial-level marketing centers in China, with 309 city branches and offices, covering most prefecture-level cities in China, and building a hierarchical and classified marketing system based on cities. SMBG is greatly affected by the macro economy, and with the liberalization of the epidemic and the recovery of offline consumption, SMBG is expected to continue to grow rapidly. The company's SMBG business is mainly for small and medium-sized enterprises, and the demand for digital transformation scenarios represented by "bright kitchens and bright stoves" is greatly affected by the macroeconomic environment. We believe that with the liberalization of the domestic epidemic and the recovery of offline consumption, coupled with the company's complete distribution system and healthy distribution ecology, SMBG is expected to continue to grow rapidly.

3. Overseas business: establish a global marketing system, the Middle East + Southeast Asia security demand is strong

As early as 2003, it began to lay out international business, focusing on "localization of team members, independent brand positioning, localization of sales and warehousing services". Hikvision began to deploy international marketing and register the "HIKVISION" trademark in 2003, and since then it has continuously promoted the internationalization of its own brands, setting up branches, manufacturing plants and R&D centers in various regions of the world. In 2014, the company implemented the internationalization 2.0 strategy, focusing on "team member localization, brand positioning autonomy, sales and warehousing service localization" to promote business globalization, and set up a total of 16 subsidiaries around the world. In 2016, the company acquired British security company SHL, further opening up the European and global markets.

Adhering to the "one country, one policy" localized marketing, it has set up 66 branches and 3 manufacturing plants around the world. After nearly 20 years of international marketing, the company adheres to the localization strategy of "one country, one policy", continues to establish subsidiaries and branches overseas, promotes the sales model of products + solutions and builds a global sales and service network. As of 2021, Hikvision has set up 66 branches, 3 manufacturing plants and 11 logistics centers around the world, covering 155 countries and regions and developing partners.

The global security market exceeds $100 billion and is expected to grow at a CAGR of 6.3% from 2021 to 2032. In recent years, many countries around the world have successively launched "smart city" or "safe city" construction policies according to their national conditions, and the international security industry has ushered in major opportunities as a direct beneficiary. As of 2019, the number of smart cities under construction worldwide has exceeded 1,000. Benefiting from the stimulus of national government policies and market development needs, cloud data storage, AI and other technology iterations have further expanded security application scenarios and value quantities. According to Future Market Insights, the global security market was valued at $117 billion in 2021 and is expected to reach $229.1 billion by 2032, with a CAGR of 6.3% from 2021 to 2032.

Overseas demand is differentiated, the growth rate of demand in developed countries has declined, and the growth rate of ASEAN and the Middle East has taken over. According to the statistics of the Prospective Industry Research Institute, overseas demand has diverged, the growth rate of demand for traditional security in the United States, Europe and other places has declined, and the growth of developing regional markets such as Southeast Asia, Africa, the Middle East, and Central and South America will become an important growth driver.

The improvement of safety awareness and regional security have promoted the high prosperity of security construction in the Middle East, and the dependence on imported Chinese manufacturers has benefited significantly. At the technical level, the Middle East is also one of the fastest growing regions in video surveillance in recent years, driven by security awareness and regional security. Countries led by the United Arab Emirates and Saudi Arabia have begun to adopt network video surveillance technology on a large scale, while their local brands are few, and a large number of security equipment relies on imports. At the same time, the Arab region does not trust European and American manufacturers, further enhancing the competitiveness of Chinese manufacturers. Saudi Arabia approved a smart city strategy with plans to build 200 AI smart cities. In February 2022, Saudi Arabia approved the Smart City Strategy, which aims to use digital and IoT technologies to drive the municipal and housing sector to upgrade to smart services, which was developed with the participation of all municipal departments and covers a development plan that extends to 2030. It is expected that by 2030, Saudi Arabia will launch more than 50 initiatives in nine industries: smart parking systems, smart systems for environmental protection and waste disposal, smart systems for housing and community management, smart systems for land and asset management, smart systems for urban landscaping and smart systems for urban planning. In September 2022, Saudi Arabia plans to build 200 AI-powered smart cities to improve parking, municipal planning, citizen engagement and more, aiming to deepen the application of AI in creating smarter, safer, and healthier cities. In addition, the Saudi government has included AI as part of Vision 2030 and the 2020 National Strategic Transformation Plan, pledging to support the country's digital transformation and launching a dedicated national data and AI strategy, in addition to its own investment through sovereign wealth funds, it plans to attract $20 billion in foreign investment.

Southeast Asia's video surveillance equipment market demand is strong, and the "One Belt, One Road" strategy helps Chinese manufacturers go overseas. According to IHS Market statistics, the Southeast Asian video surveillance equipment market continued to develop with a growth rate of 7.7% from 2015 to 2020, leading the East Asia, India and Oceania markets. Among them, the growth of the Thai and Indonesian markets is more prominent, Thailand accounts for 30% of the total ASEAN security product market, the annual demand reaches 20 billion baht, and mainly relies on imports. The main reason for the rapid growth of the Southeast Asian market is that the security development of Southeast Asian countries is in a critical period of transformation and intelligence, and Thailand aims to build 100 smart cities by 2024. In addition, the "Belt and Road" involves 11 countries in Southeast Asia, making Southeast Asia the main area for trade cooperation between China and countries along the route, which is conducive to security giants such as Hikang winning large orders in Southeast Asia. Overseas R&D centers are conducive to product localization, and after-sales service points are located in more than 70 countries around the world to respond to customer needs in a more timely and efficient manner. The company continues to improve the global marketing service network in order to be able to respond to customer needs in a more timely and efficient manner. In addition to branches around the world, Hikvision has also established R&D centers in Canada, the United Kingdom and other places to design and develop products and solutions that meet local needs at a faster pace. The company has also set up a number of overseas manufacturing bases and regional logistics centers to ensure product delivery capacity while covering cross-regional logistics and distribution. In addition, the company has established a number of call centers around the world and set up after-sales service points in more than 70 countries to provide timely and high-quality after-sales service for customers.

Overseas successful cases continue to land, and the recognition of various countries continues to increase. Hikvision based on the local localization of business, customized output products and solutions according to different backgrounds and different needs of customers, the company has completed the landing of different application scenarios in different industries, has been widely recognized and supported by overseas users, and gradually become a strong new engine for the company's performance growth.

4. Innovative business: Encourage flexibility, open up huge growth space, and become the core engine of the company's growth

With video technology as the core, it has expanded to smart home, robot, security inspection, medical, automotive electronics and other fields. Horizontally, the company takes video technology as the core and expands to smart home, robot, fire protection, security inspection, automotive electronics and other application fields; Longitudinally, the company lays out two major businesses of Hikvision and Hikvision Storage in the upstream of video surveillance, focusing on thermal imaging sensors and video storage. By the end of 2021, the company's innovation business mainly covered 8 major areas, including fluorite network (smart home), Hikvision robot (mobile robot and machine vision), Hikvision (infrared thermal imaging), Hikvision automotive electronics (vehicle safety and intelligent products), Hikvision storage (industrial control, data center, video surveillance, terminal consumer storage products), Hikvision fire (smart fire protection), Hikvision (smart security inspection, industrial testing), Hikvision (medical vision, digital medical).

In 2015, an internal innovation co-investment mechanism was established to promote the transformation of core employees into entrepreneurial partners and promote the coordinated development of traditional business and innovative business. In order to further open up the market space and maintain the leading position in the industry, it is important to promote internal innovation. In order to control the risks of innovative business and realize the binding of the interests of employees and innovative business, since 2015, the company has established an internal innovation co-investment mechanism, implemented project co-investment in innovative business subsidiaries, promoted the transformation of core employees from professional managers to entrepreneurial partners, and promoted the coordinated development between the company's main business team and the innovative business team, and between the company's traditional business and innovative business, complementing each other and forming a synergy. As of the end of 2022, 5 innovative businesses have generated revenues of more than $1 billion. Employees participate in investment through the employee co-investment platform, and the company itself has the control of the innovative business company to ensure control. Hikway is regarded as facilitating the unified management of the equity of the company held by the co-investment employees and ensuring the equity stability of the innovation business subsidiary, and the co-investment employees participate in the investment by forming a limited partnership as a co-investment platform, usually the equity institutions of the innovation business subsidiaries have Hikvision Holdings 60%, and the employee co-investment platform accounts for 40%. Hikvision has built a unified co-investment platform, co-invested in multiple projects at the same time and realized unified management, the co-investment platform is controlled by Hikvision, and the co-investment personnel only enjoy the right to co-invest income, ensuring the parent company's control over the innovative business.

The co-investment mechanism is flexible, Plan A binds the core talents of Hikvision and innovative business, and Plan B mainly stimulates the fighting spirit of core personnel of innovative business. The employees participating in the co-investment are divided into Plan A and Plan B according to the main body of the company, and Plan A holds 32% of the shares, which is composed of middle and senior management personnel and core backbone employees of the company, wholly-owned subsidiaries and innovative business subsidiaries to ensure that the co-investment employees are firmly bound to the company's innovative business. Plan B holds 8% of the shares, composed of core personnel of the innovation business, and participates in a specific business or project to further stimulate the creativity and fighting spirit of the employees of the innovative business subsidiary. The co-investment platform regularly initiates capital increases and adjusts the employee shareholding ratio according to performance. Every year, the employee co-investment platform absorbs new scientific and technological talents or existing outstanding scientific and technological talents for capital increase, and the shareholding ratio of the employees of the co-investment platform will be adjusted accordingly every year, and those with excellent performance can come later in terms of equity shares, and even if the initial share of employees with poor performance is high, they cannot obtain the qualification for capital increase in the future, and the overall shareholding ratio will be diluted.

Interests are rationalized, innovative business opens up huge growth space, and has become an important engine for the company's growth. We believe that the co-investment mechanism not only stimulates the creativity of employees, but also clarifies the interests of the parent company and the subsidiaries of the innovation business. Through the flexible follow-up investment and shareholding increase mechanism, the employees of the company and the innovative business subsidiaries can share the results and open up huge development space for coordinated development. The CAGR of innovation business revenue from 2018 to 2021 was 65.70%, which became an important growth driver for the company.

(1) Fluorite network: domestic smart home camera faucet

Fluorite Network is a smart home service provider and IoT cloud platform provider. Since its establishment, the company has been committed to exploring the application value of visual technology, always insisting on visual technology as the core feature of products, and creating differentiated advantages of its smart home products around visual capabilities. Fluorite Network builds a "1+4+N" smart home ecology, with security as the core, Fluorite Cloud as the center, equipped with four self-developed hardware including smart home cameras, intelligent home entry, intelligent control, and intelligent service robots, and develops subsystem ecology such as access environment control and intelligent audio and video. For consumer users in smart home scenarios, the company adheres to smart home products in the form of visual interaction as the basis, and effectively empowers users' smart life through diversified value-added services and open AI algorithms. For industry customers, the company focuses on its own visual technology, relying on the fluorite IoT cloud platform, through the open platform to help customers promote intelligent transformation, or assist customers to develop solutions for complex scenarios.

In recent years, revenue and net profit have maintained stable growth, and the growth rate will fluctuate in the short term due to the impact of the epidemic in 2022. Revenue increased from $1,529 million to $4,238 million from 2018 to 2021, with a CAGR of 40.5%. The rapid growth of the revenue side is the rapid development of the smart home market, the company continues to invest in product research and development, constantly improve and upgrade the product system, and actively develop open cloud platform services. From 2018 to 2021, the company's net profit increased from 132 million yuan to 451 million yuan, with a CAGR of 50.5%. The main reason for the company's net profit growth rate to be higher than the revenue growth rate is that the gross margin continued to rise from 2018 to 2021, while the expense ratio decreased steadily. However, due to the greater impact of the domestic epidemic on the mainland macroeconomy and consumer market in 2022, the growth rate of revenue and net profit in 2022 showed short-term fluctuations.

With the iteration of technology, smart home scenarios are broadened, the value is improved, and the smart home market space is broad. According to CSHIA statistics, the size of the smart home market in mainland China increased from 260.8 billion yuan to 580 billion yuan from 2016 to 2021, with a CAGR of 17.33%. According to IDC statistics, the shipment of smart home devices in mainland China increased from 110 million units to 230 million units from 2017 to 2021, with a CAGR of 20.25%. From the perspective of development stage, China's smart home industry has gradually developed from the intelligent single product stage with single product control as the core to the primary stage of interconnection with the goal of scene diversification and spatial intelligence. In the future, China's smart home industry is expected to expand its application fields with technological development and application fields such as artificial intelligence, Internet of Things and cloud computing, further moving towards a mature stage of interconnection, and even entering a comprehensive intelligent stage of actively understanding customer needs and spontaneously providing corresponding services. It is expected that with the gradual maturity of the Internet of Things, artificial intelligence and other technologies, China's smart home market will usher in a period of opportunity and rapid development.

(2) Hikrobot : visual perception, artificial intelligence and navigation control as the core, focusing on mobile robots and machine vision

Hikrobot takes visual perception, artificial intelligence and navigation control as the core, focusing on two major sectors: mobile robots and machine vision. Founded in 2016, Hikrobot is mainly engaged in machine vision and mobile robots, mainly focusing on the fields of industrial Internet of Things, smart logistics and intelligent manufacturing. Mobile robots target manufacturing and on-site logistics, with four hardware product lines of latent (LMR), shift/heavy load (CMR/HMR), fork (FMR) and material container (CTU), and two software platforms, robot scheduling system RCS and intelligent warehousing system iWMS, providing intelligent logistics solutions for automobiles, 3C electronics, new energy, supermarkets, various vertical e-commerce and other sub-industries. In the field of machine vision, Hikrobot has three product lines of 2D vision, 3D vision and intelligent ID, as well as VM algorithm platform and 3D vision application platform, building a new visual ecology based on software and hardware products.

One of the fastest growing innovative businesses, with revenue CAGR of 84.20% from 2019 to 2021. In 2019, Hikrobot made its first profit, with a revenue of 814 million, a revenue of 2.762 billion yuan in 2021, and a CAGR of 84.20% in 2019-2021, which continues to grow at a high rate and is one of the fastest growing innovative businesses.

In 2022, mobile robots will enhance AMR's autonomous capabilities, and the machine vision business will focus on the upgrade and iteration of products and platforms. In 2022, Hikrobot will fully introduce AI applications in the mobile machine business in terms of AMR perception, planning, control, and group collaboration, further improve AMR's autonomy with the help of perception technologies such as 3D vision, and strive to expand application scenarios and market scale. In the machine vision business, we focus on the upgrading and iteration of products and platforms, continue to provide customers with simpler and more open software and hardware products and systems, invest more resources to create a new machine vision ecology, serve partners at all levels of the industry chain, and create value together. Hikrobot's IPO plans to raise 6 billion yuan, which is expected to further enhance its comprehensive competitiveness after successful listing. In June 2022, Hikrobot issued the "Plan for the Spin-off of its Subsidiary Hangzhou Hikrobot Co., Ltd. to the Growth Enterprise Market of the Shenzhen Stock Exchange". On March 7, 2023, the IPO of Hikrobot Growth Enterprise Market has been accepted, and it is planned to raise 6 billion yuan. If successfully listed, Hikrobot is expected to fully leverage the capital market, further increase R&D investment in the field of machine vision and mobile robots, and enhance its comprehensive competitiveness.

(3) Hikvision Automotive Electronics: Video sensors combine radar, AI, perception data analysis and processing technologies to provide vehicle safety and intelligent products

With video sensors as the core, combined with radar, AI, perception data analysis and processing technologies to provide vehicle safety and intelligent products. Founded in July 2016, Hikvision Automotive Electronics provides vehicle safety and intelligent products with video sensors as the core, combined with radar, AI, perception data analysis and processing technologies. In February 2018, the company launched advanced driver assistance system and automatic parking APA+, and successfully entered the 2019 Porsche Cayenne in the same year; In 2020, the company's early technology accumulation has entered the landing period, and officially mass-produced fully automatic parking products based on vision and ultrasonic radar fusion. In the passenger car front-loading market, new designated projects increased highly, and business continued to double in 2020-2021. In the passenger car front-end market, in 2020, Hikvision Automotive Electronics won the top customers such as SAIC Motor Passenger Vehicle, Geely Automobile, Changan Automobile, and Great Wall Motor, accumulating more than 50 new mass production projects and more than 60 new projects, involving more than 40 models, and also passed the supplier audit of car companies including PSA, Mazda, Volvo, Jaguar Land Rover, etc., and newly obtained a number of designated projects including Dongfeng Honda, SAIC-GM and Renault-Nissan, doubling the growth of passenger car front-end business. In 2021, the passenger car front-loading business continued to double its growth, while doubling the number of new designated projects, laying a solid foundation for continued growth.

In the passenger car aftermarket, dashcam and panoramic surround view products continued to more than double in 2020-2021. In the 360° panoramic image system, Hikvision Automotive Electronics continues to expand to five major car series and 31 models on the basis of the three major car series and 23 models in 2019. Drive recorder products and 360° panoramic image products have achieved nearly twice the growth. In 2021, Hikvision automotive electronic driving recorders and panoramic surround view products continued to maintain rapid growth, and sales and shipments doubled year-on-year.

The commercial vehicle market benefited from increased penetration of in-vehicle video surveillance, ADAS, and DMS, which doubled in 2021. The popularization of on-board video surveillance from two passengers and one danger to freight has become a consensus; Intelligent technologies such as ADAS and DMS have been applied on a scale of millions; Urban public transport deepens change with the help of intelligent network technology. In 2021, Hikvision Automotive Electronics and Commercial Vehicle business doubled.

(4) Hikvision: With infrared thermal imaging technology as the core, reduce hardware costs, expand application scenarios, and make red thermal imaging products from niche to public

With infrared thermal imaging technology as the core, reduce hardware costs, expand application scenarios, and make infrared thermal imaging products from niche to public. Hikvision takes infrared thermal imaging technology as the core, based on MEMS technology, and provides core devices, movements, modules, infrared thermal imager products and overall solutions for the whole world. Hikvision is committed to promoting the substantial reduction of the cost of core components and the expansion and enrichment of application scenarios, so that infrared thermal imaging products have moved from niche to public. Relying on its own sensor and product design technology advantages, it has further expanded and optimized pan-security products, temperature measurement products and commercial vision products. In terms of complete products, Hikvision has established five advantages after years of accumulation: clear image, intelligent algorithm, efficient temperature measurement, stable application and reliable manufacturing. Relying on the technical advantages of its own sensors and product design, Hikvision takes root in market demand, and the three major categories of pan-security products, temperature measurement products and commercial vision products are further expanded and optimized, upgraded and iterated.

Improve positioning accuracy and reduce accumulation errors in the field of pan-security, complete the product line in the field of temperature measurement products, and provide a full line of products in various forms and prices in the field of commercial vision. In the field of pan-security products, in the field of civil security, the application of commanding heights is a typical application scenario, in order to further improve the positioning accuracy of Hikvision to develop attitude perception function, reduce the accumulation error caused by frequent cruise focusing, thermal imaging lens based on non-contact servo control system. Products with further improved functions have been widely used in commanding heights scenes such as forest fire prevention, fishery administration vessels, straw burning ban, border and coastal defense, etc. In the field of temperature measurement products, Hikvision completed the temperature measurement product line in 2021, which can easily cope with targets of different sizes and distances, which greatly improves the reliability of accurate temperature measurement and the convenience of equipment use. In the field of commercial vision products, thermal imaging outdoor applications mainly focus on trekking travel, outdoor adventure, search and rescue, law enforcement pursuit, anti-drug and anti-smuggling and other scenarios, Hikvision provides a variety of forms and prices, from movement, components to the whole line of products, providing partners with one-stop integration services.

Further reduce costs, broaden product portfolios, and drive thermal imaging from niche to mass. Following the launch of 160*120 resolution star products by Hikvision in 2019, leading thermal imaging into the "thousand-yuan era", thermal imaging products have been applied in more and more fields, stimulating more fragmented demand. In 2020, Hikvision comprehensively upgraded its economic products and empowered applications with an AI open platform to meet more fragmented and personalized needs of customers. In 2021, Hikvision launched a full range of 256*192 resolution products in the 1,000 yuan range, further broadening the product sequence, further exploring the cost, and promoting thermal imaging to further move from niche to the public, benefiting thousands of industries. In addition, for the high-end market, Hikvision launched high-resolution products such as 1280*1024 resolution movements and turntables in 2021, fully empowering professional industry applications.

(5) Hikvision: Business focuses on industrial control, data center, video surveillance, terminal consumption and other application scenarios

Hikstorage is committed to providing professional storage solutions for global users, focusing on industrial control, data centers, video surveillance, terminal consumption and other application scenarios. Hikvision has complete design, development and manufacturing capabilities, covering four product lines: solid-state drives, front-end storage, embedded storage and flash memory applications. In SSD products, the company upgraded the Zoned2.0 algorithm cluster in 2021 to further improve product reliability and service life, and enhance its application advantages in the field of video servers. In terms of SSDs for video surveillance, the first video surveillance disk based on QLC13 technology was released in 2021, providing a better choice for high-performance, large-capacity, high-density video surveillance applications. In the front storage products, on the one hand, the company has successively launched cost-effective video surveillance cards suitable for continuous data writing scenarios, on the other hand, it continues to expand the memory card segment, and the company actively deploys the memory market, launching consumer memory applied to personal computers, and industry memory products applied to autonomous servers. In embedded storage products, as of 2021, the company's embedded storage has covered SLC14 NAND, eMMC15, LPDDR16, DDR417 and other product series to meet the needs of customers in power, network, mobile phone, security, smart home and other industries. In flash memory application products, Hikvision Storage takes the responsibility of satisfying the diversified storage of consumers, and continues to iteratively optimize on the software system side.

Hikvision Storage pays equal attention to industry and channel in its marketing layout, with a total of more than 3,000 customers in 2021. Hikvision Storage actively expands the industry market, steadily develops the channel market, continuously improves the user service system, and the number of customers grows steadily and continuously, with a total of more than 3,000 customers in 2021 and rapid growth in sales revenue.

(6) Hikvision: Based on the precipitation in the field of video images, Hikvision has launched solutions such as medical vision and digital medical in the medical field.

Based on the precipitation in the field of video images, Hikvision has launched solutions such as medical vision and digital medical in the medical field. Hikvision deeply explores the needs of users in the medical industry, and in the face of the professional requirements of the medical industry for specific imaging effects, Hikvision has gained certain competitive advantages in full-link 4K, real-time streaming media transmission, intelligent AI algorithms and other aspects based on its technology accumulation and continuous research and development in the field of video images. Hikvision is committed to the research of visual imaging, multi-dimensional perception, artificial intelligence and other related technologies in medical scenarios, and provides customers with products and related solutions. Hikvision's business mainly involves medical vision, digital medicine and other fields. Using endoscopes to see lesions that cannot be revealed by external examination, Hikvision has introduced many solutions in minimally invasive surgery and minimally invasive diagnosis and treatment. In the field of medical vision, in minimally invasive surgery and treatment, doctors can use endoscopes to see lesions that cannot be shown by external examinations such as X-rays and MRI. In 2021, Hikvision launched a series of hard mirror solutions (4K autofocus camera system, 4K fluorescence camera system, 3D camera system, ultra-high-definition optical mirror, etc.) and medical display screen around minimally invasive surgical applications. Around the application of minimally invasive diagnosis and treatment, a series of electronic mirror solutions have been launched successively (electronic mirror camera system, repetitive electronic mirror and disposable electronic mirror and other overall solutions).

Ultra-high-definition video products are rapidly applied in digital operating rooms, digital wards, telemedicine, medical education and training. In the field of digital healthcare, in 2021, Hikvision digital medical products continued to iterate, focusing on hospital surgery, nursing, examination and other business scenarios, launching high-frame rate 4K field cameras, 4K panoramic cameras, medical video terminals, 5G video terminals, 5G teaching carts and other products, ultra-high-definition video products with the blessing of 5G technology, to achieve flexible and rapid application in digital operating rooms, digital wards, telemedicine, medical education training and other fields.

(7) Hikvision Fire Protection: Assist in the construction, visual management and digital transformation of fire Internet of Things, and play the function of early warning and early prevention and control of fire

Hikvision Fire assists in the construction, visual management and digital transformation of fire IoT. Hikvision Fire Fighting relies on emerging technologies such as multi-dimensional sensing, Internet of Things, video networking, cloud computing, big data and artificial intelligence, as well as professional image processing technology, innovative security and consumption integration and information fusion applications, to help the construction of fire protection Internet of Things, visual management and digital transformation. Hikvision's fire protection business covers traditional fire protection, smart fire protection, fire e-commerce, operation services and other business segments, and is committed to creating one-stop fire safety system solutions and one-stop fire management service solutions, so as to realize intelligent perception, intelligent prevention and control, intelligent management and smart rescue. Smart fire protection products can play the function of early warning and early prevention and control of fire, while traditional fire protection products fully cover the general fire protection market. Hikfire intelligent fire protection products and operation management platform software, through multi-dimensional perception, safety and disintegration, system collaboration, data sharing and service integration, effectively achieve early warning, early prevention and control, early disposal, reduce fire safety risks, and improve fire management efficiency. At the same time, the traditional fire protection product system continues to extend, covering the general fire market, and the products cover nine main systems in four sectors: early warning, fire alarm, emergency evacuation and automatic fire extinguishing.

The fire protection market technology is constantly upgraded, and the use scenarios of intelligent applications are expected to expand rapidly. The trend of localization and substitution in the field of traditional fire protection industry is obvious, and the system specifications and technologies of the general fire protection market are constantly upgraded. On the one hand, the new regulations will further expand the market capacity, and on the other hand, continue to raise the technical threshold of products and upgrade intelligent applications. Taking GB51309-2018 "Technical Standard for Fire Emergency Lighting and Evacuation Indication System" as an example, the standard proposes changes to the traditional fixed installation and nearby evacuation methods, requiring each region to be evacuated according to the best evacuation instruction plan according to the fire situation; At the same time, the positioning of the system in construction projects transitions from the strong current sector to the weak current sector. The construction and release of fire protection smart product standards, regional landmarks and group standards are becoming more and more mature, the demand for integrated and complex management of schools, hospitals, commercial enterprises and other enterprises and institutions is gradually awakening, and the industry is gradually showing the trend of IoT integration, prevention integration, safety and elimination integration, and digital intelligence integration, which is highly consistent with the company's philosophy. Hikvision will actively participate in the dialogue of the industry platform, strive to promote the construction of the standard system, practice the construction of intelligent Internet of Things for fire protection, help the visual management and digital development of fire protection, and jointly shape the digital intelligent future of the fire protection industry chain.

(8) Hikvision: With X-ray imaging technology as the core, it empowers intelligent security inspection and industrial detection

Hikvision takes X-ray imaging technology as the core and empowers technology in the fields of smart security inspection and industrial detection. With X-ray imaging technology as the core, Hikvision is committed to becoming a leading non-visible light detection equipment technology research and development, manufacturing, equipment sales and leasing service provider. With solid accumulation in multi-dimensional perception technology such as X-ray and millimeter wave, artificial intelligence technology, equipment IoT technology, etc., Hikvision carries out technical empowerment and value creation in the fields of smart security inspection and industrial "intelligent" manufacturing. In the field of industrial detection, Hikvision uses the ability of X-ray penetrating imaging, uses leading AI analysis algorithms, realizes the identification of imaging features of different detection objects, provides intelligent detection capabilities for foreign bodies and defects for industrial production, and builds integrated industrial detection product solutions.

The global safety inspection market is expected to grow at a CAGR of 7.3% from 2020 to 2030, with the Chinese market expected to outpace the global growth rate. The global security market is expanding rapidly driven by international conferences and counter-terrorism. Future Market Insights (FMI) predicts that the global security inspection market is expected to grow at a compound annual growth rate of 7.3% from 2020 to 2030, with China, Russia and India leading the world in investment growth in security inspection. In addition, more than half of the global market demand comes from developed regional markets around the world, but the East Asia region is also seen as the most worthwhile market for future security inspection and solutions markets. With the rapid growth of the global economy, countries are increasing investment in national and basic security facilities, which will undoubtedly promote the deployment of reliable and advanced security inspection systems.

5. Deeply rooted and pragmatic, to become one of the outstanding IT companies in China

In the 22 years since its founding, Hikvision has continued to change and innovate. Through repeated business adjustments, from board cards, back-end products to front-end products, back-end products, from hardware to software, from product suppliers to industry solution providers, from video products to alarm, access control, intercom products, step by step has become the world's largest security manufacturer. In 2012, he creatively proposed the new security concept of IVM (intelligent visual management), and in 2013, he proposed the concept of HDIY and advocated customized HD; In 2014, the 4K surveillance system was launched, injecting new power into IP high-definition visualization applications; In 2015, it detonated the IP era and comprehensively promoted the popularization of IP; In 2016, announcing the arrival of the era of SDT security big data, Hikvision once again stood at the forefront of security reform and practiced to promote the development of the industry. Operating income increased from 702 million yuan in 2006 to 83.174 billion yuan in 2022, with a compound growth rate of 34.77% in 16 years, and the net profit attributable to the parent increased from 207 million yuan in 2006 to 12.827 billion yuan in 2022, with a compound growth of 29.42% in 16 years, continuing to grow rapidly. We believe that as one of the outstanding IT companies in China, operational capabilities and corporate culture play an important role in the company's growth and build strong scarcity. The company's engineer culture, low-key and pragmatic style, strong execution, continuous focus on the "craftsman spirit" of the security industry, superimposed flexible incentive mechanism, continuous high R & D investment, always take the "most difficult road", always on the road of change, it is these corporate culture, management operation ability to create scarcity, continuous growth, widened moat.

The engineering culture is prominent, and the technology is always forward-looking. Hikvision was founded with 28 founding employees, 26 of whom were engineers by training. The advantage of technical background lies in the company's low-key and pragmatic style, and constantly integrates and develops applications through technological innovation. Since its establishment, the company has always carried out a forward-looking layout of technology, such as At the beginning of its establishment, the company was the first company to productize H.264, which improved the competitiveness of the board; In the era of hard disk recorders, pre-allocation technology is applied to greatly improve the stability of products; In 2003, it began to invest in ISP image signal processing technology, in 2006 began to do VCA video content analysis, pattern recognition, and in 2007 launched the first digital focusing movement in China; In 2013, we began to deploy deep learning, in 2015 we took the lead in launching a structured server based on deep learning, and in 2016 we fully promoted these technologies into the product line, and now there are many technologies expanding and evolving.

In the security market in-depth and focused, take the most difficult road, "craftsman spirit" to achieve today's brilliant. In the view of Hu Yangzhong, president of Hikvision, Hikvision's achievements today all depend on being down-to-earth, adhering to its original intention, and truly devoting itself to the research and development of the video field; Remember that there are no shortcuts to success, and don't follow the 'short, flat and fast' style. For example, at the beginning of the camera era, no one did ISP (camera-specific image processing technology), Hikvision chose this most difficult technology to tackle problems, always choose the "most difficult road", do what others are unwilling to do, after more than ten years of focus and depth, Hikvision has become today. Follow the trend of the times, superimpose strong execution, and build long-term advantages. Hu Yangzhong, president of Hikvision, once mentioned that major technological changes, changes in the industry itself, and the company's own management changes are all crucial. Hikvision's management, products and sales strategies are constantly in line with the trend of the times, superimposed on the company's strong execution ability, and build long-term advantages. In terms of sales, from the earliest agents, to the establishment of sales branches, the development of distributors, to close to users. Overseas, from the earliest agent, to channel sinking, to the development of secondary distributors, to the project market. In addition, the company's internal management is also changing, and it did not emphasize strategy before, but later introduced strategic management and made management changes.

Formulate high-frequency and flexible incentive policies, and explore innovative business co-investment plans among central enterprises. In the innovation process, President Hu Yangzhong bluntly said that the biggest challenge is whether employees continue to maintain passion in the context of such a large company, so the company continues to introduce incentives. Since 2012, it has formulated a 10-year, biennial equity incentive plan, which has been granted five times, covering the core talent team of managers at all levels and business backbones, and taking business backbones as the main incentive objects to stimulate the enthusiasm of core talents and build a stable core talent team. In addition, in the innovation business, there are currently eight subsidiaries of the company's "innovation co-investment", and employees hold 40% of the equity. Every year, the employee stock ownership platform re-issues additional equity redistribution, so that employees who join later and employees with good internal performance can account for a higher share, according to dynamic and adjustable distribution to stimulate the creativity and enthusiasm of employees at all levels, this system is the first exploration of Hikvision in central enterprises.

6. Profit forecasts

Revenue split and earnings forecast

Domestic main business PBG: The company's PBG business is mainly for government customers, and in June 2022, the China Security Products Industry Association issued the "14th Five-Year Plan for the Development of China's Security Industry (2021-2025)", and the growth rate of the security industry is expected to be 7%. We believe that in 2023-2024, with the government's leverage, economic recovery, and government investment strengthening in the post-epidemic era, intelligent transportation, grassroots governance, high-speed, tunnel, and subway construction, as an industry leader, the company's PBG business growth rate is expected to reach 8%. In 2022, due to the impact of the epidemic, government financial constraints, and personnel changes, the bidding of many government projects was delayed, and the PBG business is expected to decline in the short term. It is predicted that the revenue growth rate of the domestic main PBG business in 2022-2024 will be -5.00%, 8.00% and 8.00%, respectively.

Domestic main business EBG: The company's EBG business is mainly for large enterprises, with the iteration of technology, the demand evolves to the dynamic analysis of video content, and the pan-security space expands. According to data from the Academy of Information and Communications Technology, by the end of 2021, the digital scale of China's industry will reach 37.2 trillion yuan, a year-on-year increase of 17.2%, and all walks of life have fully recognized the importance of developing the digital economy, and more than 60% of enterprises are already in the stage of partial promotion or strategic planning and implementation. Impact of the epidemic in 2022 The EBG business has also experienced short-term fluctuations in the development of marketing activities, bidding and project implementation, and EBG business is also expected to decline in the short term. It is predicted that the revenue growth rate of the domestic main EBG business in 2022-2024 will be -5.00%, 17.00% and 18.00%, respectively.

Domestic main business SMBG: The company's SMBG business is mainly for small and medium-sized enterprises, and the demand for digital transformation scenarios of small and medium-sized enterprises is greatly affected by the macroeconomic environment. We believe that with the liberalization of the domestic epidemic and the recovery of offline consumption, coupled with the company's complete distribution system and healthy distribution ecology, SMBG is expected to continue to grow rapidly. It is predicted that the revenue growth rate of SMBG business, the main business in China, will be -17.50%, 15.00% and 15.00% in 2022-2024, respectively. Overseas business: Due to the decline in purchasing power caused by Sino-US trade frictions, European economic pressure and inflation, it is expected that the operating conditions of developed countries will fluctuate in the short term, and the company's overseas business will be tilted towards developing countries as a whole. At the same time, ASEAN, the Middle East and other countries have a high prosperity and strong demand for smart cities and security construction, and it is expected that the operation of developing countries will maintain rapid growth, and the company's overseas business as a whole will maintain steady growth. It is predicted that the revenue growth rate of overseas business in 2022-2024 will be 15.00%, 20.00% and 20.00%, respectively.

Innovative business: As of the end of 2021, the company's innovation business mainly covers 8 major areas, including fluorite network (smart home), Hikvision robot (mobile robot and machine vision), Hikvision (infrared thermal imaging), Hikvision automotive electronics (vehicle safety and intelligent products), Hikvision storage (industrial control, data center, video surveillance, terminal consumer storage products), Hikvision (smart fire protection), Hikvision (smart security inspection, industrial testing), Hikvision (medical vision, digital medical). Benefiting from the rapid development of the smart home market, Fluorite Network has continuously improved and upgraded its product system, and its revenue increased from 1.529 billion yuan to 4.238 billion yuan from 2018 to 2021, with a CAGR of 40.5%. At the same time, Hikrobot's revenue in 2021 reached 2.762 billion yuan, and its revenue from 2019 to 2021 CAGR was 84.20%, which continued to grow at a high rate and was one of the fastest growing innovative businesses. In addition, Hikvision Automotive Electronics, with a high increase in new designated projects, continued to double its business growth from 2020 to 2021. We believe that the interests are rationalized, the enthusiasm of employees is high, and the innovative business industries are still in the early stage, and the prosperity is high, and it is expected to continue to grow rapidly in the future and become an important growth engine for the company. The revenue growth rate of innovative business is forecast to be 25.00%, 26.35% and 29.00% respectively from 2022 to 2024.

Gross margin: In 2022, the gross profit margin of the company's engineering business will decline, while the gross profit margin of the main business will be affected by high-priced chips. It is expected that with the gradual consumption of high-priced chips in inventory and the gradual flattening of the price trend of raw materials such as chips/accessories, the gross profit margin will gradually stabilize and recover in 2023-2024. We predict that the company's overall gross profit margin in 2022-2024 will be 41.55%, 43.46% and 44.45%, respectively.

Expense ratio analysis and forecasting

In 2020-2021, the company's personnel grew rapidly, and in 2021, the company's personnel increased by 23.6% to 52,700. We believe that from 2022Q4 to 2023, the company will adopt stricter cost control measures and actively optimize personnel, and it is expected that the personnel growth rate will maintain a slight growth level. At the same time, in terms of personnel salaries, due to the slowdown in the service process of Internet giants and the fading effect of industry robbery, personnel salaries are expected to gradually become rational compared with the "rush of people" in 2020-2021. Sales expense ratio: Considering the company's strict cost control and streamlined personnel planning, it is expected that the growth rate of sales personnel and per capita expense growth will remain at a low level in 2023, and the company's per capita sales expense is expected to increase slightly in 2024 with the economic recovery. It is predicted that the growth rate of the company's sales personnel from 2022 to 2024 will be 5%, 2% and 2%, respectively; Per capita costs increased by 10%, 5% and 8%, respectively. The company's sales expense growth is expected to be lower than the revenue growth, and the sales expense ratio for 2022-2024 is forecast to be 11.90%, 10.91%, and 10.17%, respectively.

Management expense ratio: Considering the company's strict cost control and streamlined personnel planning, it is expected that the growth rate of management personnel and per capita expense growth will remain low in 2023-2024, and the growth rate will gradually decline. It is predicted that the growth rate of the company's management personnel from 2022 to 2024 will be 5%, 4.5% and 4%, respectively; The per capita cost growth rate was 5%, 4% and 3.5%, respectively. The company's management fee growth is expected to be lower than revenue growth, with the forecast management expense ratios of 2.80%, 2.62% and 2.39% for 2022-2024, respectively. R&D expense ratio: Hikvision continues to increase technology investment, and R&D expenditure usually accounts for about 10% of revenue, with an investment amount of 8.252 billion yuan in 2022, and the number of R&D personnel accounts for nearly half of the overall employees. It is expected that the company will further increase investment in research and development in the future, especially in the era of sharp rise in ChatGPT parameters and significant improvement in productivity, as the most core AI company in China, AI applications are expected to continue to open up the company's growth ceiling. It is expected that the growth of technical personnel will maintain a rapid level in 2022, and in 2023, considering that the growth rate of streamlined personnel planning will maintain natural growth, and in 2024, with the economic recovery and continuous breakthroughs in AI application scenarios, the growth rate of technical personnel and per capita expenses are expected to increase, and the growth rate of the company's technical personnel is predicted to be 15%, 4% and 6% respectively from 2022 to 2024, and the per capita R&D expenditure growth rate of the company's technical personnel is predicted to be 6%, 4% and 6% respectively from 2022 to 2024. The company's R&D expense growth is expected to be lower than revenue growth, and the R&D expense ratio is forecast to be 12.20%, 11.17% and 10.63% for 2022-2024, respectively.

(This article is for informational purposes only and does not represent any investment advice from us.) For information, please refer to the original report. ）

Selected report source: [Future Think Tank]. 「Link」