(Yicai Global) Aug 15 -- Shares of Hikvision Digital Technology dropped after the Chinese maker of surveillance equipment said it does not plan to pay a cash dividend following an 11 percent decline in first-half net profit due to the increased cost of stockpiling parts amid supply chain concerns.

After slumping as much as 7 percent in the morning, Hikvision [SHE: 002415] ended today 4.8 percent lower at CNY31.70 (USD4.69), bringing the stock’s decline to 39 percent so far this year.

Net profit was CNY5.8 billion (USD854 million) in the six months ended June 30, versus CNY6.5 billion a year earlier, according to the earnings report the Hangzhou-based company released on Aug. 13. Operating income was CNY37.3 billion (USD5.5 billion), up 9.9 percent.

Mainly because of a significant increase in outlays on procurement and stockpiling, Hikvision’s net outflow of operating cash was CNY2.2 billion, versus a net inflow of nearly CNY2 billion a year earlier.

The value of its inventories was CNY20.7 billion at the end of June, up almost 37 percent compared with a year ago. Because of supply chain concerns, Hikvision will maintain a high level of inventory in the long term, an executive said on the firm’s earnings conference call.

Between March and May, the Chinese market was hit by Covid-19 outbreaks that impacted the company’s business, which picked up in June. Domestic revenue rose 1.6 percent to CNY20.1 billion in the first half, while income from the firm’s main overseas business soared 18.9 percent to CNY9.7 billion.

Hikvision’s main business has a large base, so adding a new category or new customers cannot offset the pressure of overall weak demand brought about by the economic downturn, management said on the call.

Hikvision’s gross profit margin was 43.1 percent in the period, down 3.2 percentage points year on year, mostly due to surging raw material costs, according to Xu Yong, an analyst at Ping An Securities.

The firm’s smart home businesses, including Ezviz and Hikvision Robots, and Hikvision Automobile had overall revenue of CNY7 billion, an increase of 25.6 percent, accounting for 18.8 percent of the overall operating income. Ezviz aims to list on Shanghai Nasdaq-like Star Market, with China International Capital as the sponsor.

Editors: Shi Yi, Futura Costaglione