HIKVISION(002415) 申万宏源·2024-09-25 13:10Investment Rating - The report initiates coverage with a "Buy" rating for Hikvision [4][7]. Core Insights - The report addresses three key questions: 1) How to confirm the current safety margin as shareholder returns increase despite slowing growth; 2) Whether the new growth curves of smart IoT and scenario digitization have sufficient growth space and competitiveness; 3) The elasticity of performance and valuation in the new growth phase [11]. - The company has maintained a high level of shareholder returns, with cumulative cash dividends of approximately 58.4 billion since its IPO in 2010, and a recent dividend payout ratio reaching 60% [4][12]. - The digital business's competitiveness stems from scale effects, with over 500 solutions and high-frequency reuse of software and hardware, allowing the company to meet fragmented demands more efficiently [4][19]. - Historical valuation analysis shows that the company's bottom PE typically hovers around 20x, currently at historical lows, indicating potential for significant valuation recovery [4][7]. Financial Perspective - The company has a stable and abundant free cash flow, with a free cash flow to net profit ratio averaging around 64% over the past decade [13][15]. - The company’s cash reserves are substantial, with 49.6 billion in cash at the end of 2023, sufficient to cover current liabilities [14][15]. - Future dividend rates are expected to maintain at least 60%, with potential for increases based on various scenarios of free cash flow [15][16]. Business Perspective - The market for digital transformation is projected to grow significantly, with an expected expenditure of 428 billion USD in 2024, representing a tenfold growth opportunity compared to the narrow security market [19][20]. - The company has established a clear evolution path for its smart IoT business, enhancing customer value through advanced hardware and software capabilities [20][21]. - The company has accumulated extensive practical experience across various industries, enabling it to meet diverse and fragmented digital transformation demands [23][24]. Valuation Discussion - The report utilizes a PE valuation method, comparing Hikvision with domestic and global digitalization companies, projecting a target market value of 350 billion based on a 20x PE for 2025 [4][7]. - The company’s historical valuation trends indicate potential for significant upward movement in PE ratios, particularly if macroeconomic conditions improve [4][7][8].