Security industry: look at security from a different perspective

Main Opinions Our core logic for the security industry, namely the logic of supply competition based on "scale effect and brand premium" and the demand logic of "high-definition intelligentization and security operations", explained in the past few years the security duopoly maintaining high profit margins. And the reason for the high growth rate, the logic in the B2B field will ensure the continued growth of the two companies in the next three years. Breaking through the perspective of products and equipment in the traditional industrial era, a wave of intelligence has emerged as the core of vertical integration in consumer electronics. The big data revolution in the IT industry is all about data from entry to hardware to systems and services. Transmission, we continue to sort out the growth logic of the security industry in the next three years from a new perspective:

Inspiration from consumer electronics: The era of vertical integration from entry to hardware, hardware to system, and system to data services. Since the wave of intelligence initiated by Apple in 2009, the logic of professionalization of traditional division of labor has been overturned and entered the era of vertical integration and integration. From the hardware integration of Samsung to the integration of Apple's hardware system, it has continued to bring new consumer spending. Experience, the future of Google as the representative of the hardware, software to service integration will open a new five-year period, and all this is centered on two core, namely, the entrance and data. Who can master the entrance and data, who is the winner in the vertical integration competition. In fields other than consumer electronics, we also increasingly see the logic of traditional division of labor being replaced by vertical integration.

The security industry will also enter the vertical era. We believe that with the security industry entering the era of high-definition and intelligence, the production of massive data has the value of data, and the speed, amount of information, and transmission compactness of data transmission are not the same as in the analog era. The new security vendors will provide a complete solution from the data capture, data compression, data transmission to data processing, and the isolated and divisional mode will greatly reduce the efficiency of the data flow operation process. We believe that the security and duopoly vendors Hikvision and Dahua will take on this vertical integration mission. The added value provided by traditional contractors, software vendors, and system vendors is getting lower and lower, and they are in an unfavorable competitive environment. There are two reasons. First, as consumer electronics, portals, and data are the key to success, Hai Kang and Dahua have expanded rapidly in the field of cameras, not only occupying foreign brands, but also relying on economies of scale, brand premiums, and back-end storage. The monopoly of the market occupies the market of small and medium-sized brands, and the monopoly of the back-end market is replicated in the front-end market. We have verified this from the upstream research. Under this circumstance, security equipment manufacturers not only master the entrance, but also master the data source. This is something that traditional system manufacturers do not have. Especially in the era of high-definition and ipcamera, the processing and compression of images and data is realized in the camera equipment itself. Secondly, in the equipment sector, we repeatedly emphasized that Haikang Dahua is essentially a platform software provider. They are Microsoft and Apple in the PC field, not HP and Dell, and essentially sell software. The nature of the software allows them to go from the hardware provider to the system provider, and the transition to the security operations service provider after mastering the data.

There is no essential difference between civil commercial security and consumer electronics. No matter whether it is family and business individual, its product logic is no different from consumer electronics. Hai Kang Dahua begins to cut in. It will no longer play the role of equipment provider, but will be an overall solution provider and future operational service provider. In these areas, the camera not only assumes the role of security, but also the function of video management. From the open news, we can see many cases of Haikang's application in the civilian field. After obtaining enough users, we have to the IT vendors. The possibility of a special Internet company transformation. Civilian B2C and B2B fields are faster than the government's B2G.

The government provides opportunities for security operations from the era of buying systems, buying equipment, and buying services. In the government sector, the biggest bottleneck of tradition is that the government is the owner of big data, and the government is not willing to share data resources. However, with the government's strategy for IT from buying systems and buying products to buy services, the emergence of professional operating service providers is possible. The massive information obtained by security equipment manufacturers through cameras can be converted into various types of data-based applications and uses. , especially in the business area. The greater value of security vendors is not only security operators, but more likely big data providers. The platform and system business of the two manufacturers will get up first. Although the government's security operations will come after the meeting, the long-term strategy is the area worth looking forward to in the future.

Although the business model generated by the security operations business and big data is only the perspective of the next 3-5 years, it is indeed the core logic of security companies' future growth path and market value. Take the two US and Japanese security operations of ADT and Secom as examples. The market value is US$8.6 billion and US$12.4 billion, respectively, and the valuations are both 20 times. China’s corresponding larger population base has a larger market capitalization. may.

In the third quarter of the peak season, the growth rate of the business is expected to accelerate. We tracked through multiple upstream and downstream channels, and entered the peak season for orders in the second half of the year, as well as increased penetration of high-definition cameras (this year's high-definition camera penetration rate is expected to increase from 10% to 30% last year, which is still the growth momentum for the next two years). The growth rate of performance has accelerated.

Balanced configuration strategy. In the security industry over the past three years, we have seen the oldest player in the second phase of the competition curve catching up with the boss. Haikang’s scale effect, brand premium, direct sales channels, and front-end layout are copied by Dahua, so Dahua leads The security industry rose and Haikang continued to contribute investment income. The two manufacturers continue to enjoy China’s engineer bonus. At present, Haikang is leading in big data and security systems and operations. Dahua is more flexible in the private enterprise mechanism. Haikang Dahua has its own advantages and a balanced configuration is the best configuration strategy. It is expected that Hikvision's performance in 2013 and 2014 will be 0.75 yuan and 1.05 yuan, and Dahua’s 2013 and 2014 results will be 1.12 yuan and 1.68 yuan respectively, maintaining its BUY rating.

Uncertainty: Smart City investment is lower than expected.