Summary of Jiangsu Hengli Hydraulic Conference Call Company Overview - **Company**: Jiangsu Hengli Hydraulic - **Industry**: Heavy Machinery - **Market Cap**: Rmb130 billion / US$18.3 billion - **Shares Outstanding**: 1,305 million - **Current Share Price**: Rmb99.87 (as of 18 September 2025) - **12-Month Rating**: Buy - **12-Month Price Target**: Rmb115.00 (previously Rmb84.00) [7][20] Key Points Industry Dynamics - **Demand Recovery**: The domestic construction machinery market in China is expected to enter an upcycle in 2025, with domestic sales of construction machinery rising by 21.5% YoY in the first eight months of 2025 [10][14]. - **Excavator Sales**: Hengli's production scheduling for excavators was strong, driven by improving demand from domestic OEMs and increased overseas market share [3][10]. Financial Performance - **Earnings Growth**: EPS estimates for 2025-2027 have been raised by 8-11% due to stronger growth assumptions in the excavator cylinder and pump & valve segments [2][17]. - **Revenue Projections**: Revenue for 2025 is projected at Rmb10,266 million, with a CAGR of 21% expected from 2025-2027 [6][18]. - **Profitability Metrics**: EBIT margin is expected to improve from 26.9% in 2025 to 30% in 2027, with ROIC projected to rise from 32.6% to 37.7% during the same period [6][21]. Product Segments - **Excavator Business**: Revenue from excavators is expected to grow at a CAGR of 22% from 2025-2027, with significant contributions from the cylinder and pump & valve segments [27]. - **Screw Products**: The ball screw and roller screw segments are anticipated to become significant growth drivers, with the ball screw expected to contribute 11% of total revenue by 2029E [4][15]. Valuation Changes - **Valuation Methodology**: The valuation method has shifted from PE to SOTP (Sum of the Parts) to better reflect the potential of the screw businesses [19]. - **Price Target Adjustment**: The price target has been lifted to Rmb115.00, implying a 42x PE for 2026E, which is higher than the average of peers in the humanoid robot sector [20][21]. Risks and Considerations - **Geopolitical Risks**: There is uncertainty regarding construction machinery exports to the US and EU due to potential trade restrictions [10]. - **Market Competition**: Hengli is ranked as a top competitor in the industry, but there are concerns about the fundamentals of lower-ranked companies like Dingli [10][14]. Additional Insights - **Technological Advancements**: Hengli is focusing on technological strengths to capitalize on the humanoid robotics market, although this segment is still in early development [15][16]. - **Market Share Gains**: Continued share gains in the cylinder and pump & valve markets are expected, with potential breakthroughs in the screw businesses not fully priced into the current valuation [2][14]. Conclusion Jiangsu Hengli Hydraulic is positioned for strong growth in the heavy machinery sector, driven by recovering demand, robust financial performance, and strategic advancements in product offerings. The company's valuation reflects optimism about its future earnings potential, particularly in the excavator and screw product segments.

Investment Rating - The report maintains a Buy rating on Hengli Hydraulic with a target price of Rmb85.0, indicating an expected share price return of 26.1% and a total return of 27.2% [6][15]. Core Insights - Hengli Hydraulic aims for over 10% year-on-year growth in both revenue and earnings in 2025, primarily driven by a 20% increase in excavator component revenue despite flat non-excavator business [1]. - The Mexico plant is set to ramp up in June 2025, expected to contribute Rmb200m-300m to revenue in 2025, which would represent approximately 50% of Hengli's US revenue [4]. - The impact of US tariffs on demand has been limited, as major US customers can source Hengli's products from non-US plants [1]. Summary by Sections Excavator Business - Revenue from excavator pumps and valves is projected to grow by 30% year-on-year in 2025, while cylinder revenue is expected to increase by 10% year-on-year, driven by market share gains in China [2]. - Monthly production has been at full utilization from March to May 2025, but a decline is anticipated in June due to seasonal factors [2]. Non-Excavator Business - Revenue in the non-excavator segment is expected to remain flat in 2025, primarily due to weaker demand for Aerial Work Platforms (AWP), which accounted for about 10% of total revenue in 2024 [3]. - Non-excavator cylinders are projected to decline by a single digit year-on-year, while pump and valve revenues may still see a year-on-year increase [3]. Mexico Plant - The Mexico plant's revenue contribution is expected to double to Rmb600m-700m in 2026 and potentially reach Rmb3.0bn in the future [4]. Ball Screw and Linear Guide Business - Combined revenue from ball screws, linear guides, and electric actuators is anticipated to reach Rmb250m in 2025, with expectations to double to Rmb500m-600m in 2026, achieving gross and net profit margins of 30% and 10% respectively [5].