Hangzhou Hikvision Digital Technology Co. Ltd.

The stable outlook on Hikvision reflects our expectation that the company will continue to generate strong free cash flow and remain in a net cash position over the next 12 to 24 months. The imposition of sanctions on Hikvision could result in a downgrade because it will likely have a significant and negative effect on its supply chain, production, customer demand, and financial results. Separately, we could lower the rating if Hikvision's debt-to-EBITDA ratio exceeds 1.5x. This would likely be due to aggressive debt-funded acquisitions or large, capital-intensive projects that underperform our expectations. We may also downgrade Hikvision if the credit profile of the company's parent, China Electronics Technology Group Corp. (CETC), materially deteriorates, or if Hikvision's importance to its

...Hangzhou Hikvision Digital Technology Co. Ltd.'s market leadership in China will endure. Hikvision has better technology than domestic peers, strong relationships with institutional customers (especially governments), and an extensive distribution network. These factors should enable the company to defend its market position in China. Proposed sanctions by the U.S. could cause supply and production disruption and threaten Hikvision's credit quality, if implemented. The U.S. government is contemplating possible sanctions against Chinese companies that are enabling or participating in potential human rights issues in Xinjiang province. If such sanctions materialize, they could disrupt Hikvision's supply chain given that it sources several key components from U.S. companies, including chips, memory, and graphics processing units. Finding alternative suppliers and components of comparable quality could be challenging in the short term. As a result, we will likely place the rating on the company...

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