Safe City Construction Promotes Security Applications

Since the beginning of this year, Hikvision, a high-quality company in the security industry, has dropped 4.1% and 26.13% respectively in its 4.14% Capital Report and Dahua Shares' 3.64% Capital Report, which has significantly underperformed the industry. Investors began to think about whether Haikang and Dahua have encountered market value bottlenecks. Can they still hold for a long time? Can the security industry sustain high growth in the next three years or even longer? Equipment manufacturers are still not the most benefited part. Are there any new security targets to choose from?

We are optimistic about the continuous growth of the security industry in the next few years, and are more optimistic about the investment opportunities of security application companies.

Promote urbanization, relay in third and fourth-tier cities

The violent terrorism case in Kunming presents new features. The domestic security situation is not optimistic. Stability is overwhelming and security investment will continue to increase. Compared with past terrorist attacks, this terrorist attack presents some new features in terms of time, place, and degree of badness. Kunming’s violent and terrorist case occurred on the eve of the two conferences. It was intended to convey the arrogance of terrorists; the location of crimes was chosen in Kunming, where security was relatively weak. Other cities may have been attacked in the future; bloody means, heavy casualties, and casualties in recent years. Most terrorist incidents. Affected by the change of the "eighteenth" government and the rhythm of the five-year plan, the security industry has had relatively few bidding activities in the past two years, and it is in a phased "low valley". It is expected that the investment will begin to accelerate gradually in 2014.

The urbanization rate will continue to increase in the next ten years, and population gathering will fundamentally require increased investment in security. Judging from international experience, urbanization will not slow down until the urbanization rate reaches 70%. At the same time, Li Keqiang, Premier of the State Council, has repeatedly expressed that urbanization is the greatest potential for expanding domestic demand and is an important support for economic restructuring. It will vigorously promote the construction of new urbanization. However, the urbanization rate in China is currently only reaching about 50%. Regardless of international experience or domestic policies, the urbanization rate will continue to increase in the next ten years. Urbanization will bring about population agglomeration, and security risks will increase. Fundamentally, it is required to increase security investment.

Pingan City is expected to accelerate its penetration into third and fourth-tier cities, and its market space will expand several times. Violence and terror cases occurred in the west and are expected to accelerate the process of infiltration of safe cities into cities in the central and western regions. The core drivers of security are urbanization and unbalance. Although foreign experience shows that first and second tier cities are the focus of investment, we believe that the third and fourth tier cities in China will account for a higher proportion of input, and the gap between rich and poor and disharmony The central and western regions have become more visible, and the violent and terrorist case is expected to promote the construction of safe cities in the third and fourth-tier cities.

Sihuan enhances production value and applies spring

The four trends of digitalization, high-definition, networking, and intelligence will boost the security output value. Digitalization and high-definition mainly refer to the upgrading of a whole set of equipment including cameras, and more advanced equipment requires greater capital investment. In addition to the upgrade of hardware equipment, the network and intelligence are mainly large-scale platform construction and multi-application landing. “Sihua” means more advanced and smart devices, but it also means that security has entered the era of smart applications, and the investment rate of software application platforms in security will also greatly increase.

Security construction has entered the stage of deepening application and tackling terrorist activities will accelerate the process of networked intelligence. After the infrastructure construction, the first-tier cities encountered video data analysis problems and could not efficiently use large amounts of video data to solve urban security problems. Therefore, the construction of a new round of safe cities will be more focused on the application of software platforms. The most effective way to respond to terrorist activities is to give advance warning. This requires that the third and fourth-tier cities with poor security construction should pay attention to smart applications at the initial investment. According to statistics, 90% of terrorist activities in the United States have been well controlled through advance warning. In addition, the new round of safe city construction adopts a lot of BT or BOT construction models. Integrators have the purchasing power of equipment because of the total capital investment and get greater bargaining power and the right to speak. We believe that as the value chain of the security industry moves down, the voice of application integrators increases, and security applications will usher in the spring of development.

On the whole, we believe that the construction of safe cities will speed up and focus on the field of high-definition intelligent surveillance, and security applications will usher in the spring. We are optimistic about the use of customers, capital and technology advantages of the application of listed companies, followed by recommended Jiadu Technology, Dongfang Wang Li, Anju Bao [2.78% Capital Research], Warburg shares [2.16% Capital Research] and other companies. At the same time, we believe that equipment manufacturers benefit from the wave of high-definition and internationalization. Leading companies are expected to benefit, and they recommend Hikvision, Dahua, Zhongwei Electronics [5.88% Capital Research] and Infinera [10.03%]. .