20220706-招银国际-China_AI_Smart_city_bidding_to_pick_up_in_2H22_13页_2mb

报告摘要

CMB International Global Markets | Equity Research | Sector Update Summary

Core Content Overview

This document provides an equity research update on China AI sector companies, focusing on Hikvision, Dahua, and SenseTime. It outlines the current market conditions, company performance, valuation changes, and future outlook.

Main Points and Key Information

Public Security Projects Bidding

Public security projects bidding was down -4% YoY in 2Q22 due to the Omicron spread in China.
The slowdown is expected to reverse in 2H22 as the government aims to boost the economy post-lockdown.
In FY21, To-Gov't revenue accounted for 24% of Hikvision's revenue, 18% of Dahua's, and 46% of SenseTime's revenue.

SenseTime Sell-Off

SenseTime's share price corrected by >50% after the 6-month lock-up expired on 30 Jun 2022.
The company announced a 12-month lock-up for 28.44% of issued shares, including all Class A shares and 52% of Class B shares held by management.
The recent sell-off is attributed to profit-taking by pre-IPO investors and not fundamental changes in the AI sector.
IDC forecasts China AI market to grow at 24.4% CAGR from 2020 to 2025, reaching US$18.43bn.

Valuation and Target Prices

Pecking Order: Hikvision (BUY) > SenseTime (BUY) > Dahua (HOLD).
Hikvision: Target price at RMB57.10, based on 29x FY22E P/E. Valuation is 2-SD below 3-year mean.
Dahua: Target price trimmed to RMB17.06 from RMB20.89, based on 13x FY22E P/E.
SenseTime: Target price revised to HK$4.50 from HK$7.84, based on 19x FY22E EV/Sales. The premium multiple is narrowing due to increased number of AI companies listed and higher free float.

Company Performance

Hikvision: Expected to grow FY2Q22 revenue by +11% YoY. Strong growth in innovative businesses such as smart home, robotics, and thermal.
Dahua: FY2Q22 revenue growth expected at +7% YoY. Cut FY22E net profit by 6% due to lockdown impact.
SenseTime: FY1H22 revenue growth is expected at 16% YoY. However, the company has a high base in 1H21, and the free float increased from 5.1% post-IPO to 71.6% post-lock-up expiry.

Valuation Table Summary

Company	Ticker	Rating	Mkt Cap (US$ mn)	Price (LC)	TP (LC)	Up/down-side (%)	EV/Sales FY23E	EV/Sales FY22E	EV/Sales FY23E	ROE FY22E
Hikvision	002415 CH	BUY	51,068	36.29	57.10	57%	17.9	3.4	25.9	26.8
Dahua	002236 CH	HOLD	7,215	16.15	17.06	6%	11.7	1.3	15.9	16.7
SenseTime	20 HK	BUY	11,743	2.75	4.50	65%	n.a.	9.5	-2.3	-2.7
AlInnovation	2121 HK	NR	1,354	19.00	n.a.	n.a.	n.a.	5.1	-26.8	-20.4
Cambricon	688256 CH	NR	3,735	62.47	n.a.	n.a.	n.a.	22.7	-17.6	-15.0
Arcsoft	688088 CH	NR	1,778	29.36	n.a.	n.a.	72.1	14.3	6.3	9.1

Key Figures and Analysis

Hikvision

Sales: CMBI estimates for FY2Q22 at RMB22,093m, slightly below Street estimates.
Gross Profit: RMB10,029m, with GM at 45.4%.
Operating Profit: RMB3,928m, with OPM at 17.8%.
Net Profit: RMB3,937m, with Net margin at 17.8%.
EPS: RMB0.42, with CMBI slightly higher than Street estimates.
Spin-off Plan: Hikvision announced plans to spin off smart home and robotics businesses on the STAR board to support IoT/AI R&D.

Dahua

Sales: CMBI estimates for FY2Q22 at RMB8,997m, slightly below Street estimates.
Gross Profit: RMB3,691m, with GM at 41.0%.
Operating Profit: RMB1,234m, with OPM at 13.7%.
Net Profit: RMB1,238m, with Net margin at 13.8%.
EPS: RMB0.40, with CMBI slightly higher than Street estimates.
R&D Exposure: Dahua has weaker R&D and lower revenue exposure in non-public security innovative businesses compared to Hikvision.

SenseTime

Sales: CMBI estimates for FY22E at RMB5,639m, slightly below Street estimates.
Gross Profit: RMB3,862m, with GM at 68.5%.
Operating Profit: RMB-2,107m, with OPM at -37.4%.
Net Profit: RMB-1,646m, with Net margin at -29.2%.
EPS: RMB-0.05, with CMBI significantly lower than Street estimates.
Free Float: Increased from 2.1% post-IPO to 71.6% post-lock-up expiry, affecting valuation premium.

Conclusion

The China AI sector is expected to recover in 2H22, with public security projects likely to see an uptick in bidding numbers. While SenseTime experienced a significant sell-off, it is not fundamental driven. Hikvision remains the top pick due to its diversified revenue streams and strong R&D investment, while Dahua is held due to weaker R&D and lower valuation. SenseTime has revised target price due to narrowing premium multiple.