Dahua’s Third Quarter Results Report

As a security giant, Dahua’s business status has been good and the company’s third-quarter earnings report has recently been announced. The profitability of the enterprises in the report is still good.

Revenue increased by 50% in the first three quarters and net profit increased by 85% In the first three quarters of the first three quarters, UOB's operating income was 2.193 billion yuan, a year-on-year increase of 50.13%; net profit attributable to shareholders of listed companies was 378 million yuan, an increase of 85.08% year-on-year. In the third quarter, the company achieved operating income of 896 million yuan, an increase of 58.18% year-on-year; and net profit attributable to shareholders of listed companies was 152 million yuan, an increase of 102.03% year-on-year. The third quarterly report showed that the company’s revenue and profits continued to grow at a rapid rate, and the single-quarter growth rate hit a new high since early 2011. The company expects its annual net profit to be 6.05-7.56 billion yuan, a year-on-year increase of 60%-100%.

In the third quarter, gross profit continued to increase, and the slight decline in net profit was due to the increase in sales expense ratio. As the company’s proportion of high-end products continued to increase, the gross profit margin of the company’s sales continued to increase slightly. In the third quarter, the gross profit of the company reached 43.12%, which was 0.53% higher than the second quarter and 2.97% higher than the first quarter. As the company's sales expense ratio and administrative expense ratio rose slightly in the third quarter, the company's net profit margin was 15.51%, a decrease of 2.58% from the second quarter. In the first three quarters, the company obtained rapid growth in non-operating income, amounting to 92.16 million yuan (mainly returning value-added tax), which accounted for 24.38% of net profit, resulting in growth of net profit exceeding revenue growth.

The main investment logic of the industry's “high-end front-end equipment” continues to be verified. The long-term logic of the growth of the security industry is mainly the “high-end front-end equipment” technology upgrade and the increased penetration rate driven by government investment. According to the feedback from the three quarterly reports, the trend of high-definition front-end equipment is still strengthening. At present, the company's sales ratio of front-end and back-end equipment has not yet reached 1:1. There is still a big gap between the front-end and back-end ratio of 3:1 that will be achieved by the “high-definition basic universalization” and the industry still has room for improvement in the future. It will support the security industry to achieve sustained growth.

Maintaining the “recommended” rating 2012-2014 forecast EPS for the company was 1.14 yuan, 1.82 yuan, and 2.67 yuan respectively, and the current dynamic valuation of the stock price was 38, 24, and 16 times respectively. Under the general trend of high-definition and intelligent development in the video surveillance industry, industry growth has been supported. As a leading company in the industry, the company not only fully enjoys technology upgrades and market opportunities brought by government investment, but also maintains a “recommended” rating due to its comprehensive product line and its sales channels all over the country.