The "smart home + cloud platform" two-wheel drive has fully entered the new era of AI +. 1) The company, formerly known as Hikvision's Internet business center in 2013, started with smart home cameras and other key products, built a dual main business pattern of "smart home + cloud platform services", and became a leading provider of smart home service solutions and Internet of Things cloud platform in China. 2) In the first three quarters of 2024, the company achieved operating income of 3.963 billion yuan, a year-on-year increase of 12.93%, a net profit attributable to the parent company of 375 million yuan, a year-on-year decrease of 6.69%, and a non-attributable net profit of 368 million yuan, a year-on-year decrease of 5.41%.

The smart home market has a broad space, and AIoH has become the focus of future development. Compared with traditional AI technology, the core feature of the large model is that it reshapes the interaction mode of the use experience of these scenes, and users only need to interact through natural language interactions such as voice and text, breaking through the weak voice interaction ability of traditional smart home products, the need to click through complex interfaces, and the high cost of hands-on learning, etc., and breaking through the problems of simplifying the interaction link and layout design of the product, and at the same time having human-like perception capabilities, no longer requiring users to remember specific rules, smart home App As a result, it has been upgraded from an ordinary interface software to an "intelligent assistant" with strong perception capabilities.

The product matrix + intelligent cloud platform creates ecological barriers, and AI is expected to help improve ARPU. 1) Benefiting from Hikvision's technical genes, EZVIZ has industry-leading algorithm advantages in the field of video and audio AI; Self-built supply chain system, with lean supply chain management and stable delivery capabilities; The continuous enhancement of online and offline channel capabilities has driven the company's brand influence at home and abroad. The superposition of algorithm + supply chain + channel advantages enables EZVIZ to become the leader of smart home security cameras. According to the information on EZVIZ's official public account, in 2024H1 consumer camera shipments, EZVIZ ranks first in the world. 2) As of 2024H1, the cloud platform business accounts for nearly 20% of the company's revenue, and the gross profit margin is as high as 76%, which is much higher than the smart home product business, and it can be said that the cloud platform has become an important source of the company's profit growth. Since 2021, the number of connected devices, registered users and monthly active users has continued to increase, and the number of C-end paying users and active users has also continued to increase, which proves that cloud services can deeply bind users, thereby improving user stickiness and further consolidating customer ecological barriers. 3) With the development of AI technology and the birth of new needs, the number of paid users and ARPU of the company's cloud platform are expected to further increase. 4) In 2024H1, overseas business accounted for about 33% of the company's revenue, with a year-on-year growth rate of 30%, and overseas business is expected to drive the overall growth of the company's performance.

First coverage, with a "buy" rating. We estimate that the company's operating income from 2024 to 2026 will be 55.15/63.78/7.349 billion yuan, and the net profit attributable to the parent company will be 5.73/7.10/886 million yuan respectively.

The corresponding PE for 2024-2026 is 53.1/42.8/34.3x, respectively. The company is currently at a relatively low valuation compared to comparable companies, and it is covered for the first time, giving it a "buy" rating.

Risk warning: the risk that the iteration of AI technology is less than expected; the risk of an economic downturn exceeding expectations; the risk of intensifying competition in the industry.