Helped by China's Economic Recovery, Hikvision's Unified Smart Products Fuel Earnings Growth

Hangzhou Hikvision Digital Technology is the world’s largest maker of video surveillance equipment and is the leader in China, which is its biggest market and accounts for 70% of its revenue. Hikvision was the first domestic player to reorganize its business and offer customized total solutions across different industry verticals. This first-mover advantage has enabled it to accumulate deep industry knowledge and better solutions with higher efficacy. As a result, it has established leading market share across the value chain, from cameras and servers to VMS software, and has delivered attractive ROICs above its peers in China. We believe that Hikvision’s dominance across the value chain, especially in software and artificial intelligence platforms, will reinforce switching costs for customers and allow it to outgrow the market at the expense of smaller players with more limited financial resources and product offerings. In the medium term, we expect the nationwide “Xueliang” project, robust software solution growth, and continued market share gains in China to drive earnings.