Incident: Hikvision released its 2023 Annual Report and 2024 Quarterly Report. Throughout 2023, the company achieved operating income of 89.340 billion yuan, an increase of 7.42% year on year; net profit to mother was 14.108 billion yuan, an increase of 9.89% year on year, which is basically the same as the performance report. In Q1 2024, the company achieved operating income of 17.818 billion yuan, an increase of 9.98% year on year; net profit to mother was 1.916 billion yuan, an increase of 5.78% year on year.
Revenue improvement for each business group. In 2023, the revenue situation of the company's major business groups improved. Among them, PBG achieved revenue of 15.354 billion yuan, a year-on-year decrease of 4.84%, and the decline narrowed year-on-year (15.79% year-on-year decrease in '22). EBG and SMBG revenue stopped falling and rebounded, with year-on-year increases of 8.12% and 1.46%, respectively.
Gross profit margin rebounded and remained stable at three fees. The company's consolidated gross margin was 44.44% in 2023, which has rebounded to the center of recent years. Among them, the gross margin of main products and services increased by 2.60 pct to 46.34%, contributing to the main gross profit growth. On the expense side, the company's sales/management/finance expense ratios were 12.14%/3.10%/-0.84%, respectively, which was basically the same as the previous year.
Increase R&D investment to consolidate the position in the smart IoT market. In 2023, the company continued to increase R&D investment. R&D expenses were 11.393 billion yuan, an increase of 16.08% over the previous year, higher than the revenue growth rate. The R&D expenses rate was 12.75%, an increase of 0.95pct over the previous year. The company continues to strengthen and consolidate the foundation of intelligent IoT technology, continuously enrich the types of intelligent IoT devices, seize the opportunities of digital transformation, and consolidate its market position in the field of intelligent IoT.
The intelligent IoT transformation has been initially completed. Continued investment in artificial intelligence has brought substantial improvements to Hikvision's product development, algorithm development, and solution development. The company continues to use its advantages in technology accumulation and industry understanding to rapidly advance the development of new digital products, form a large number of multi-dimensional sensing products suitable for various typical application scenarios and solve users' core pain points, etc., to accelerate the advancement of Hikvision's intelligent IoT strategy. In 2023, Hikvision initially completed the transformation of the intelligent IoT strategy.
Investment advice: The company's gross margin is growing steadily, the expense ratio is currently under control, and the revenue of all business groups will improve in 2023. The company's intelligent IoT transformation was initially completed, and gross margin gradually rebounded. We are optimistic that the company will continue to increase investment in R&D and consolidate its market position in the field of intelligent IoT. We are optimistic about the company's development. We expect the company to achieve revenue of 98.6 billion yuan, 111 billion yuan, and 125.6 billion yuan in 2024-2026; net profit of 16.7 billion yuan, 18.5 billion yuan; EPS 1.79, 1.98, 2.19 yuan; PE 18X, 16X, 15X, and maintain a “buy” rating.
Risk warning: The digital development of the industry falls short of expectations; market competition intensifies; risk of losing users; risk of technology application falling short of expectations.