Strong demand in the security industry and the differentiation of vendors coexist

In 2-3 weeks, we communicated with the manufacturers inside and outside the security industry. The main conclusions are:

(1) It is expected that the demand of the security monitoring industry in 2012 will remain relatively good, and the trend of the large-project market will show gradually. With the further improvement of market liquidity and the restoration of railway and other public infrastructure projects, the security monitoring industry will usher in investment opportunities;

(2) In 2011, small and security companies faced financial difficulties, DVR price wars, and the slowdown in demand in East China and highway/railway/real estate markets. Some small-scale manufacturers went bankrupt or stopped, and the trend of strong and weak differentiation among security industry vendors further showed up. Large manufacturers have strong anti-risk ability due to their extensive downstream, brand, and capital advantages.

(3) The cooperation barriers of security integrators are increasing year by year.

As the industry continued to boom, in 2011, DVN, Jieshun Technology and Zhongwei Electronics were listed. It is expected that 3-5 security companies will also be listed in 2012, and the industrial plate effect is gradually being formed. The pace of security companies' listing will also indicate the high status of the industry.

In addition, the New York Post reported recently that the security of the New World Trade Center in New York, scheduled to be completed in 2013, will cost tens of millions of dollars. The enlightenment from this incident is that in the future, the government, various industries, and residents will continue to increase their emphasis on security technologies. At the same time, the security, intelligence, and integration of security technologies still have a long way to go. The possibility of high growth in the industry is still high.

Regarding whether or not public security concerns are affected by the decline in investment, our view is that real estate regulation will affect the needs of the low-end security market in stages, but the loose fiscal policy tone and the government help the Ministry of Railways issue bonds and encourage private funds to enter the public infrastructure. Industries, etc., indicate that the market demand for the application of security industry (including government) is still relatively good, and our research results also demonstrate this point.

Security listed companies:

(1) On February 20th, Hikvision (002415) released a performance report. In 2011, its total operating revenue was 5.226 billion yuan, a year-on-year increase of 44.96%, and total profit was 1.695 billion yuan, an increase of 48.35% year-on-year; attributable to shareholders of listed companies The net profit was 1.448 billion yuan, which was 37.69% year-on-year. EPS is 1.45 yuan (since the determination of key software companies in the national planning layout has not yet started in 2011, the company considers the principle of prudent, and temporarily calculates the corporate income tax rate for 2011 as 15%. If it passes the certification, the annual report should actually disclose that the EPS is 1.53 yuan. Around, a year-on-year growth of 45.14%

(2) We believe that Hikvision's 2011 results are in line with expectations, Q4 single quarter revenue of 1.773 billion yuan, a quarterly growth of 46.3%; a net profit of 579 million yuan, a chain growth of 46.2%, are better than Q3 growth rate. Although the growth rate of the security industry has declined since 2011Q3, we believe that Q4's business from the end of Q4 has a positive trend. Judging from the current project bids and orders, it is expected that Q1 growth will be good this year, and the path of the company's transition to solution manufacturers will be gradually clear. We maintain our recommended investment rating for Hikvision.