In the past few years, from photovoltaics, automobiles to express delivery, curbing "inward competition" has become a common challenge faced by multiple industries in China.

In the wave of de internalization sweeping the industry, Hikvision (002415. SZ), the leader of intelligent IoT, chose to take the initiative earlier. Since mid-2024, the company has started to adjust, streamline its product line, withdraw from low price bidding, and clarify its domestic main business policy as "actively withdrawing from industry competition and focusing on more efficient growth".

Two years later, the effects of this choice began to show in financial reports.

On the evening of July 24th, Hikvision released its 2026 semi annual report, which showed that in the first half of the year, the company achieved a revenue of 46.823 billion yuan, a year-on-year increase of 11.97%; The net profit attributable to the parent company was 7.896 billion yuan, a year-on-year increase of 39.57%. Both values are the highest for the same period since the listing.

Hikvision's net profit growth rate in the first half of the year was more than three times the revenue growth rate, corresponding to a significant increase in gross profit margin.

In the first half of the year, the overall gross profit margin of the company increased from 45.19% in the same period last year to 49.97%, and reached 50.67% in the second quarter alone. In the past few years, the company's gross profit margin has remained stable between 42% and 46%, and this year it has increased by nearly 5 percentage points. Hikvision attributed the increase in gross profit margin to the enhancement of product competitiveness, the effectiveness of product line streamlining, and the improvement of pricing environment due to industry anti competition.

The management of Hikvision expects the company's gross profit margin to remain high in the second half of the year.

In addition, in the first half of 2026, Hikvision's five innovative businesses of robotics, thermal imaging, storage, automotive electronics, and smart homes generated a total revenue of 15.17 billion yuan, a year-on-year increase of 28.93%, accounting for 32.40% of the total revenue and an increase of 4.26 percentage points compared to the same period last year. Among them, the company's storage business grew by 88.18%, nearly doubling; Thermal imaging business grew by 47.61%; The robot business with the largest revenue scale grew by 28.34%.

At the performance briefing, the management of Hikvision predicts that the company will achieve "revenue exceeding 100 billion and profit reaching a new high" for the whole year of 2026.

On the same day, Hikvision disclosed its mid-term profit distribution plan, proposing to distribute a cash dividend of 5.50 yuan (including tax) for every 10 shares, with an estimated distribution of 5.041 billion yuan. Adding the dividend of 6.874 billion yuan completed in May this year for the year 2025, the company's expected cash dividend for the year is 11.914 billion yuan. As of now, the company has implemented cash dividends of 75.375 billion yuan; After adding the cash dividends planned to be distributed in mid-2026, the total dividend amount will reach 80.416 billion yuan.

Innovative business contributes half of the profit increment

For a company with a market value exceeding 300 billion yuan, a growth rate of nearly 40% in net profit is not common.

Hikvision's non recurring net profit for the first half of the year was 7.712 billion yuan, a year-on-year increase of 40.50%, which is basically consistent with the growth rate of net profit attributable to the parent company. The net profit growth rate of 39.57% is the highest for Hikvision in the same period of the past five years, and the last similar growth rate was 40.17% in the first half of 2021. Starting from the first quarter of 2025, the growth rate of the company's net profit attributable to the parent company has been increasing quarter by quarter for six consecutive quarters.

The driving force for profit growth largely comes from five innovative businesses. According to the performance briefing, Hikvision's net profit attributable to its parent company increased by approximately 2 billion yuan in the first half of the year, of which about half came from innovative businesses. In the first half of the year, the revenue growth rate of the company's innovative business was more than six times that of its main business, and its proportion of total revenue also increased from about a quarter to nearly one-third within two years.

Ranked by growth rate, the company's storage business revenue was 1.944 billion yuan, a year-on-year increase of 88.18%, leading the growth rate; The revenue of thermal imaging business was 2.964 billion yuan, an increase of 47.61%; The robot business generated a revenue of 4.028 billion yuan, an increase of 28.34%, making it the largest revenue sector among the five innovative businesses; The revenue of automotive electronics business was 2.764 billion yuan, an increase of 17.50%; The revenue of smart home business was 2.817 billion yuan, an increase of 2.35%.

Among them, the storage and thermal imaging businesses contributed a total of 4.908 billion yuan in revenue in the first half of the year, accounting for one-third of the innovative business and being the two engines with the greatest pulling force in this round of growth.

While the innovative business is growing rapidly, Hikvision's main business is also improving. The company's main products and services generated a revenue of 30.616 billion yuan in the first half of the year, a year-on-year increase of 4.59%. The gross profit margin increased by 5.39 percentage points to 53.91%, which is nearly 10 percentage points higher than the gross profit margin of innovative businesses. It remains the most profitable business segment for Hikvision. The main business, which accounts for 65% of the total revenue, has significantly improved its profitability while maintaining steady revenue growth.

The improvement of the profitability of the main business is directly related to the business adjustment launched two years ago. From the second half of 2024 to 2025, Hikvision will internally streamline its product line, focus on enhancing product competitiveness, and strive to produce more high-quality products that are both unique and superior to others; Externally, we will adjust our pricing strategy and no longer participate in low price bidding. Instead, we will emphasize using new technologies to solve customers' real pain points and bring tangible value to them. In the two to three years prior to this, the domestic industry was fiercely competitive and price wars were frequent, causing the company's gross profit margin to decline from 46% in 2021 to around 43% in the first half of 2024.

The effect of this round of adjustments is also reflected in the cost aspect. In the first half of the year, Hikvision's three expense ratios totaled 27.9%, a year-on-year decrease of 1.5 percentage points, of which the sales expense ratio decreased by 1.2 percentage points. For a company with annual revenue approaching 100 billion yuan, every 1 percentage point decrease in expense ratio corresponds to a profit release of nearly 500 million yuan.

From the perspective of customer structure, among the three major business groups of Hikvision in China, SMBG (Small and Medium sized Enterprise Business Group) has the fastest growth rate, with a year-on-year increase of 13.55%; EBG (Enterprise Business Group) grew by 3.63%; PBG (Public Service Group) grew by 4.67%. The company's overseas main business revenue in the first half of the year was 12.945 billion yuan, an increase of 5.84%.

The growth of domestic main businesses comes from the combination of two forces. On the one hand, security products have a 5 to 8-year update cycle, and some products have entered a centralized update period; On the other hand, the implementation of AI big model technology has opened up new demand space that did not exist before.

Large models enter the product line

The high growth rate of Hikvision's innovative business and significant improvement in its main gross profit margin in the first half of the year are both related to the landing of AI big model technology products.

The semi annual report shows that Hikvision continues to promote the integration of the Guanlan large model with software and hardware products.

At the World Artificial Intelligence Conference (WAIC) in July this year, Hikvision released a new version of the "Hikvision Guanlan Large Model White Paper".

It is reported that the company's Guanlan large model technology system has released thousands of software and hardware products, covering cloud, edge, and end domains, deeply cultivating more than 90 vertical industries and more than 2000 scenarios, and has accumulated over 600 intelligent solutions. Among them, the company's text search product (an intelligent device that retrieves video content through text descriptions) has sold over 100000 units since its launch in March 2025.

The impact of large models on the specific product performance of Hikvision is already very clear in several scenarios.

In the field of security, Hikvision's perimeter protection cameras tested in Europe have been optimized using a large model algorithm, reducing the false alarm rate to one tenth of its original level, and even to one twentieth in testing environments.

The parameter count of the distilled large model algorithm is sufficiently simplified and can be directly run on edge devices. Products that were previously unable to be widely promoted due to too many false positives are now available.

In the field of transportation, big model technology has effectively detected dangerous behaviors such as overloading, overcrowding, and large trucks running red lights, solving long-standing regulatory challenges.

The millimeter wave human body security scanner of Hikvision's Hikvision Ruiying has passed the China Civil Aviation A3 level certification in September 2024, and uses large model algorithms to directly analyze raw perception data to complete security checks and judgments. Hikvision Ruiying achieved rapid growth in multiple fields such as security inspection, industrial testing, and food testing in the first half of the year.

Since September 2025, the prices of electronic components such as storage have risen significantly, and Hikvision's Guanlan coding technology has precisely offset this pressure. This technology utilizes AI to recognize key focus areas in the image and dynamically encode them, helping users save about 50% of storage costs at the same image quality.

The management of Hikvision admitted at the performance briefing that promoting this technology will reduce the company's own hard drive shipments and have a short-term impact on revenue, but in the long run it will help increase market share and brand premium. The practice of helping users save money is precisely a choice that a company with a leading market share has the confidence to make.

There is a common product logic behind these scenarios. In multi-point and large-scale network systems, edge devices equipped with vertical low computing power models have advantages over centralized high computing power solutions in terms of computing speed, overall cost, network expenses, and long-term operation and maintenance costs.

A typical example is facial recognition access control. When the recognition library expands from 100000 to 300000, the amount of data and hardware points increase simultaneously, and various unexpected problems arise. Hikvision's approach is to increase the model parameters and computational power, but the algorithm still only runs on the end side, otherwise real-time performance and stability cannot be guaranteed.

End side AI is the field that Hikvision has accumulated the deepest in the past 25 years.

The AI entrance to the physical world

In the past two years, most of the capital expenditure in the AI industry has flowed towards large model training and cloud computing power.

Hikvision has chosen a different direction, deploying compressed large models to various perception devices to enable AI to operate in specific industry scenarios.

This path is not easy. The physical world is highly fragmented, and the needs of different industries vary. The landing speed of AI on the enterprise side is usually slower than that of chat applications on the consumer side.

The statement made by the management of Hikvision at the performance briefing is that precisely because the products are rich enough and the scene accumulation is deep enough, Hikvision should become the preferred partner for users in various industries in digital transformation. Doing a good job in bridging artificial intelligence from the physical world to the digital world will provide a broad market space for the company's development in the coming years.

This positioning is highly in line with the current evolution direction of the global AI industry.

Since the beginning of this year, physical AI has become the recognized next stage in the industry. Whether it is robots, autonomous driving, or industrial intelligence, they all need to first perceive and understand the physical world before they can talk about decision-making and execution.

And the perception layer is exactly the field that Hikvision has been deeply cultivating for 25 years. The company's accumulation of multidimensional perception technology covers multiple types of signals such as visible light, infrared, X-ray, millimeter wave, etc. These capabilities constitute the entrance for physical world data to enter AI systems. The value of the entrance lies in the fact that the higher the level of industry intelligence, the larger the scale of data flowing through the entrance, and the company's business space also expands accordingly.

The pricing of a company in the capital market depends on two variables: profitability and valuation multiples, and currently, Hikvision is in an upward channel for both variables.

The rebound in profitability has lasted for six quarters. Starting from the first quarter of 2025, Hikvision's net profit attributable to shareholders has been increasing quarter by quarter, with the gross profit margin center shifting from around 43% to around 50%.

From 2010 to 2021, Hikvision's return on equity (ROE) remained relatively stable between 27% and 36% over the 12 years, with a slight decline in the following four years. The company expects ROE to return to over 20% this year.

The changes in valuation come from the company itself.

Previously, the market had priced Hikvision based on the framework of security hardware enterprises for a long time. Today, Hikvision's innovative business accounts for nearly one-third of its total revenue, with AI big model products covering more than 90 industries and R&D investment exceeding 10 billion yuan for three consecutive years.

The valuation framework for security hardware companies is no longer sufficient to fully cover the company's current business composition. Profit recovery and valuation reassessment are synchronized, and there is a special term in the capital market called Davis Double Click. For shareholders of Hikvision, this means that profits may come from a combination of two directions.

Of course, the premise for all of this to be true is that the improvement in profitability can be sustained.

The management made a judgment during the performance briefing regarding pricing strategy, stating that Hikvision, which adheres to the business philosophy of "professionalism, solidity, and integrity," aims to earn reasonable profits by relying on technology and professional capabilities, "by addressing users' real pain points and making them feel that they are getting better value for money.