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China TransInfo Technology: Unwavering in Its Smart City Ambitions
COVID-19 and China
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► The net income growth of TransInfo Technology overran revenue growth in three consecutive years, from 2017 to 2019. 
► Smart transportation and intelligent security – the company is focusing on both – are wide open, looking at large and increasing demands.

On May 27, 2019, public transport software provider China TransInfo Technology received CNY 3.59 billion in investments from Alibaba, marking the beginning of extensive cooperation between the two companies in the mass deployment of intelligent public transport solutions and cloud-based services for general security, which are two main business focus areas of the company. 

Now, one year later, the synergies are showing up. 

Supported by Alibaba, TransInfo Technology speeded up its expansion. Based on AI, cloud computing, and big data, it is constructing an in-depth integration of smart transportation and next-generation Internet of Things (IoT). Early this year, the company announced a private placement plan of CNY 1.9 billion for further exploration in the intelligent transportation field. 

According to its financial report for FY2019, the company recorded a revenue of CNY 8.72 billion, with a year-over-year rise of 20.28%, and a net profit of CNY 1.01 billion with a year-over-year surge of 32.88%. 

Due to the slowdown in the economy led by the COVID-19 pandemic, the company reported that revenue in the first quarter increased by 0.47% compared to the same period in 2019, from CNY 1.64 billion to CNY 1.65 billion. There was a drop of 24.37% in recurring net income, from CNY 152.41 million in 1Q19 to CNY 115.26 million in 1Q20, mainly because of the loss from investments and medical donations related to the public health event. In general, the downturn didn’t affect the company much.  

The two main businesses contributed to the sales nearly equally. The revenue in 2019 consisted of 50.04% in intelligent transportation, with CNY 4.37 billion, and 49.95% in smart pubic security with CNY 4.36 billion.

Moreover, in three consecutive years, the net income growth overran revenue growth, which signifies that Transinfo Technology is in an expanding period. 

Cash flow provided by operating activities surged 389.45% in 2019, significantly higher than the growth of revenue, which indicates a progressing payment collection efficiency. Also, it fluctuated periodically, with negative results in the first half of the year and a return to positive in the rest of the year. The amount used in operating activities decreased by 1.33% in 1Q20, while the negative figure is expected to turn positive in the following quarters, reflecting favorable operating results.  

The R&D expenditure has been gradually rising since 2017, with expense ratios of 7.15%, 8.59%, 8.83%, and 10.61% in 2017, 2018, 2019, and 1Q2020, which is consistent with the company’s prioritizing research on new technological applications. Expenses in FY2019 were attributed to intelligent transport activity worth CNY 4.36 billion, with a year-over-year run-up of 24.73%, and public security of CNY 680 million, with a year-over-year run-up of 18.11%. The gross profit margin recorded 1.88% lower to 30.99% in 2019 – which was because of the low cost-efficiency in system integration orders during the year. The company saw such kinds of project orders decreasing. Other expenses account for a small proportion of total costs and have been steady in recent years. Overall, Transinfo Technology did well in expense management. 

Advantages: solutions + relationships

Taking advantages of big data and AI (Artificial Intelligence), TransInfo Technology is focusing its development strategy on deploying the construction of the next level of ‘smart city,’ based on transportation and intelligent security. 

The main business includes products, services and comprehensive solutions of smart transportation systems covering urban traffic, road transportation, rail transit and civil aviation, and intelligent security systems based on a full-spectrum video front-end and artificial intelligence background.

Smart transportation solutions

With decades of deep plowing in the transport field, Transinfo Technology has covered the whole industrial chain from products to solutions, from cloud data to applications and from infrastructure hardware to core software. Intelligent highways and smart urban transportation are two other important market segments. 

Intelligent highway 

TransInfo Technology won the bidding on more than 20 projects worth tens of thousands of yuan and five projects worth over CNY 100 million in 2019 on highway businesses.  

The electromechanical solution combines Information and communications technology and sensor technology to integrate video surveillance and road command management. The electromechanical project of Hangzhou-Jinhua-Quzhou speedways, which was constructed by TransInfo Technology, became the first intelligent highway in China. 

The company independently developed the Electronic Toll Collection (ETC) series of products, with 39 patents and 3 software copyrights, and other smart toll products. With the full cancellation of the toll stations on provincial borders in 2019, the instability of the highway online toll audit system bothers the Transport Ministry, which became the main focus for the ministry in 2020, and therefore, provides opportunities for companies operating a smart transport business, such as TransInfo Technology. The company has secured the bid for the cancelation project of toll stations on Gansu province's boundary and its upgrades on the online audit system in 2019, which is worth CNY 670 million and is still ongoing. The latter is expected to generate significant profit for TransInfo Technology in 2020. 

TransInfo Technology has developed multiple smart road network products to monitor and detect traffic flows to provide safety supervision on the highway network. So far, its road network monitoring and detection products have been applied to most provinces in China. 

Moreover, TransInfo Technology combines big data, Internet, cloud computing, AI and IT, based on industry development and demand, forming a comprehensive solution covering the business fields of smart airport construction, aviation information construction and airport professional engineering. The airport safety state management system of Capital International Airport, which the company is undertaking, is the first project of its kind to be implemented in airports in China.

Smart urban transportation

With deep development in the urban traffic field over many years, TransInfo Technology provides comprehensive informatization solutions for transport systems, including traffic management, Transportation Operation Coordination Centers (TOCCs), road network prevention and control systems, smart rail, smart hub, and smart parking.

The company builds Comprehensive Transportation Informatization systems for monitoring and command road traffic to ensure urban transit remains orderly and safe. TransInfo Technology has built the Beijing Municipal TOCC, the Shenzhen Transportation Operation Command Center and Chongqing Downtown Road Operation Monitoring System. 

For operators of integrated passenger transportation hubs, the smart hub system provides services on condition monitoring, passenger information sharing, operation management and networked ticketing. Cases include Shenzhen Futian Hub, Chongqing Sigongli Hub, Chengdu East Passenger Transportation Station Hub, Beijing Dongzhimen Hub, and Nanjing South Station hub. 

Smart parking business covers the top-level design of municipal level static transportation, parking lot investment, planning and design, operations management, and post-service application scenario development of autos for companies, communities, commercial real estates and airports. 

Benefiting from advanced technologies like 5G mobile communication, big data analysis, AI and edge computing, TransInfo Technology provides a full series of intelligent networking products and solutions for Vehicle to Everything (V2X) vehicle terminals, with precise road presentation. 

TransInfo Technology also provides transport Internet and information solutions to end users on linkage, with electric maps including Baidu, Tencent. Moreover, the company is one of the largest taxi media operators, focusing on media terminal equipment developments and investments.

Intelligent security + IoT solutions

The acquisition of Uniview in 2018 took TransInfo Technology into the smart security market. Uniview, founded in 2011, is one of the global companies focused on public securities solutions; it is now the third-largest player in video surveillance in China, ranking No.4 in global market share, according to IHS Markit. The IP Multimedia Operation System (IMOS), developed by Uniview, is the only AIoT (AI+IoT) operation system in China. 

With 12% of revenue invested in R&D every year, coupled with AI technology, the company has positioned its status in the smart security industry. It is promoting the transformation of the security industry from passive monitoring to proactive identification.

The differentiation in user demands also tables higher requirements for software support and flexibility in the operating system. In catering to customized and refined needs, the strategies of Uniview evolved from “visual intelligent IoT” to “well-rounded digital smart IoT,” with more than 11 sets of solutions provided that cover retail, enterprise, airport, bank, cities and campuses. 

Uniview integrates big data in the transport industry and AI security, which is becoming a unique edge for the company. The comprehensive solutions have been utilized in the Beijing Zhongguancun traffic management project, the Garden Expo security and the traffic project. 

Industry contacts & cooperation & partnerships 

Starting with the acquisition of Uniview, TransInfo Technology successively teamed up with leading Internet companies, such as Baidu and Alibaba, to apply the qualifications of each side for mutual benefits. Also, the company maintains strong relationships with large clients, including local governments and state-owned enterprises. 

In May 2019, Alibaba became the second-largest shareholder of TransInfo Technology, with in-depth integration on solutions, technologies, and markets. Benefiting from the Alibaba Cloud services, Transinfo has developed advanced solutions in intelligent transport solutions and public security. 

The strategic partnership relationship between Baidu Apollo and TransInfo Technology started in 2018. The two parties cooperate in applications of the vehicle-road collaboration field, especially in self-driving technology.  

The clients of TransInfo Technology have become a great asset for it in maintaining its status in the industry. As for now, the company has developed strong relationships with transportation sectors in the state government in building better smart transportation and traffic management systems, and state-owned enterprise in promoting V2X applications.

Future Opportunities

The intelligent transport market is wide open

According to the Qianzhan Industry Research Institute, the industry scale of intelligent transportation will grow at a compound average rate of 13% annually in China, to reach CNY 1.50 trillion by 2024. In the next five years, the industry's growth will be sustained at a goodly pace, with expenditure on technologies continuing to mount. 

The action platform related to the transport system promotion that was published by Chinese Transport Ministry states that in 2025 the country will achieve an in-depth integration on big data and transportation and complete construction on comprehensive smart transport systems, with the penetration rate of ETC application increasing from 30% to over 50%. 

In better utilizing the benefits of encouraging industry growth and supporting policies to expand further in the intelligent transport industry, TransInfo Technology is speeding its research into big data and V2X technologies. 

Based on data from chyxx.com, one of the largest research institutes in China, the output value of big data applications in China will exceed CNY 1 trillion in 2020. The scale of V2X technology will grow at a CAGR of 33.70% to the amount of CNY 371 billion in 2022, which overran global average growth.

The smart security market is more competitive

Qianzhan Industry Research Institute published its AI industry analysis in China in 2019, in which speech recognition and computer vision are considered to be the two most extensive applications in the AI industry. Within the computer vision area, security takes 68% of the market, which shows a substantial market space in China's construction of public security. Along with the development of AI technologies, smart security has transformed from a singular focus to diversifying coverage, and from passive defense to active forewarning, with more comprehensive and advanced solutions provided. 

According to the "Security Plus AI white paper" published by the Institute of Automation, the Chinese Academy of Sciences and Uniview's research team, in 2020, the industry scale of smart security will reach USD 10.60 billion globally, and USD 2 billion in China. In the video monitoring market, Uniview is following Hikvision and Dahua Technology to become the fourth largest position globally and third in China. However, 51.90% of the Chinese market share has been taken by Hikvision and Dahua Technology, with only 4.50% distributed to Uniview. As the technical upgrading and the effect from price wars, the video monitoring market, which is the central part of the smart security industry and prior emphasis for Uniview, is moving closer to convergence with greater competition.

For TransInfo Technology and Uniview, there are still also many opportunities to go alongside the challenges.   

Editor: Luke Sheehan
ANALYST
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