Hikvision’s Preliminary 2022 Figures Miss Our Forecasts; Fair Value Estimate Unchanged

No change was made to our fair value estimate and forecasts after Hikvision 002415 released preliminary full-year 2022 items. We intend to finalize our forecasts once full results are announced in mid-April. We see several upside catalysts for Hikvision, namely progress in listing its robotics business and announcing a carve-out of the automotive electronics business, follow-up policies in robotics and automation segments, and possible expansionary fiscal spending. We still find the stock undervalued as it continues to benefit from global digital transformation despite geopolitical risks.

Full-year 2022 revenue grew 2% year on year to CNY 83.2 billion, implying fourth-quarter sales of CNY 23.5 billion, or 10% short of our forecasts. Full-year net profit and EPS dropped 24% to CNY 12.8 billion and CNY 1.37, respectively. Fourth-quarter net profit was CNY 3.99 billion, up 29% from the prior quarter but 28% below our forecast. We believe fourth-quarter results were adversely affected by a massive coronavirus infection wave in China after pandemic controls started to ease in November. Due to the infection wave, we presume most unfulfilled orders in the December quarter will be recognized as revenue in the first half of 2023.

Hikvision’s revenue and net profit figures mean employees are likely to miss out on their restricted shares. The share incentive scheme implemented in late 2021 requires 20% return on equity (19.6% reported in the announcement) and 10% revenue growth in each year to qualify for restricted shares in the next. If management does not exercise its discretion to waive these requirements, this will provide nearly CNY 1 billion upside to 2023 net profit.