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Contact: Tiffany Lee
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Contact: Charles Lam
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Security enterprise transformation of the three elements of success

Security companies in China, mostly started late, the brand, capital, technology, sales channels and the European and American security standards, difficult to achieve breakthrough development. The development of an industry need a specification of environment, and biggest problem in China‘s security market is market standardization. In today‘s China security industry, good and evil people mixed up, copied, lack of innovation, price war to break out... This situation cannot make security companies achieve a strong fist, is not conducive to the long-term development of the whole security industry. In different ways, from the security industry‘s demand as the economic transformation, will also be huge market opportunity. Security industry behind the seemingly "an auspicious", industrial structure is undergoing unprecedented pitch change, each big manufacturer to city level solution provider transformation, opportunities and risks coexist. 
Security companies 
Security gold period for 10 years, industry is turning point on the site 
Q3 2015 earnings still bright eye, security monitoring index plate revenue and net profit growth of 22.24% and 42.22% respectively, but all kinds of related company begins to increase gradually. Terminal equipment business financial indicators before and after the financial aspect, the steady, sea Kang Dahua duopoly structure stability; Special equipment makers increasingly marginalized, each index continued to deteriorate; Solutions business revenue CAGR over 50%, ROE in continues to rebound, but no significant improvement in operating cash flow. Industry, on October 15th ember will close in shenzhen, in order to "video" for the perception of the core, "cloud and big data" for the technical architecture city level solution gradually become the industry consensus. Macro policy, non-traditional security threats are increasingly serious, Paris events once again let us recognize the actual combat ability of city security system is of great importance. At the same time, by the "safe city" to "peace" in China, a series of policy suggests that security industry will continue to boom. 
However, from the indicators to our communication with the industry to find in the security industry behind the seemingly "an auspicious", industrial structure is undergoing unprecedented pitch change, each big manufacturer to city level solution provider transformation, opportunities and risks coexist. Therefore, we will from the perspective of policy, technology and capital three expounds the future solution will accelerate the concentration of logic, and discuss the possible mode innovation. 
A policy, 
Industry growth is turn into the season, technical upgrades for the top-level design. We believe that over the next five years in security industry growth will decline gradually, but as a result of China‘s urbanization rate and urban security camera coverage compared with the developed countries is still low, so the security industry continued to boom, high-speed growth by 15% - 15% to 15% - 15% of high-speed growth. Public security and financial structural opportunities still exist two subdomains. 2015 security products in the application field of in our country, the public security and finance is the most important two subdomains. In view of the public security as the main investment subject to demand, and considering the policy continues to advance, and the financial security major change for five years and the development trend of bank security network monitoring, we think that the two areas will remain around 20% growth. At the same time, according to the "3111" project to "safe city" and "wisdom city" construction land, combining with the investment cycle of security around five years, we forecast will enter a large-scale technical transformation to upgrade period at the end of 2016, with policy dense sound, urged the top-level design calls for public safety, we think the future construction will farewell "savage growth" state, the top design of the actual combat ability of city level based on the security system will gradually become the mainstream. 
Second, the technology 
Security 2.0, technical barriers to become an important impetus industry evolution, accelerate concentration. Customer demand tends to be complicated, the top design, project construction needs to be reversed transmission downstream market to accelerate the focus. In peace city as an example, the future industry entered a stage of technical upgrading, need to be more comprehensive and intelligent integral solution, the public security video surveillance coverage is no longer confined to expansion and density as well as the definition, but by the density of expanding security 1.0 to pay attention to security 2.0 times of the actual combat ability. With demand of complicated technical aspects: hardware, video monitoring equipment upgrade is front end from analog to digital process of IP, the backend is the process by the local to the cloud; Application software, intelligent analysis and big data is the future trend. In contrast, industry internal security pattern of the downstream industry extremely scattered, volume of listed company is opposite bigger, but compared with the industry total scale is still very low proportion, less than 5%, far below the equipment. At the same time, according to the data of listed companies, research and development investment proportion and corporate profit margins and revenue growth is a positive relationship, and r&d spending is far above the industry average income of listed companies. Therefore, we believe that r&d has now watershed, r&d investment in listed companies significantly higher than that of small manufacturers, technology will drive market to accelerate the focus. 
Three, capital 
Financing ability and capital operation means difference, will accelerate the expulsion of small and medium-sized enterprises, power solution concentration. Security monitoring index, on the one hand, since the end of 2012, from more than 800 points, the highest to 10000 points, to the use of capital market for merger, acquisition and reorganization of listed companies, private placement, equity incentive and industry fund and a series of capital operation, in the current registration landing forecast is unknown, the secondary market is still enjoy the "privilege" of capital cases, at a lower cost to raise more money for its good technology, good product or regional market channels target acquisition, integration and optimization of efficiency will be much higher than the company itself, self-built. Solution, on the other hand, the company operating cash flow is generally poor, mode by the change of BT, BOT and PPP project background, the listed company‘s cash flow will not get worse, and for the listed company, the PPP government-funded background is a special financing joint venture project, is beneficial to reduce the financing cost, and the joint venture company as the principal part of the debt to avoid the risk of project to the parent company financial shocks, to a certain extent have played an important role in the risk isolation. The PPP mode decision up at the same time, will accelerate the market concentration, financial strength, case, qualified, and resource integration ability of the enterprise will be rapid development.