2025-09-15 13:17Summary of Jiangsu Hengli Hydraulic Conference Call Company Overview - Company: Jiangsu Hengli Hydraulic Co Ltd - Industry: Hydraulic components and systems, specifically focusing on excavator hydraulic cylinders, pumps, and valves - Market Position: Leading supplier in China with over 40% market share in excavator hydraulic cylinders [11][40] Key Points and Arguments Financial Performance - 2Q25 Results: Revenue increased by 11% year-over-year (Y/Y) and net profit rose by 18% Y/Y, both exceeding consensus and historical averages [16] - Guidance: FY25 guidance remains unchanged, but there is potential upside for FY27 and beyond due to strong business momentum [17][31] - Revenue Forecasts: FY27 revenue estimates increased by 4% and FY28 by 12%, with net profit estimates raised by 3% and 11% respectively [17] Growth Drivers - Domestic Demand: Strong recovery in domestic demand, particularly for excavator cylinders, driven by infrastructure projects like the mega-dam and Xinjiang-Tibet Railway [16][22] - International Expansion: Orders from Europe and the US are rebounding, with the Mexico plant expected to achieve profitability by 2026, mitigating tariff risks [16][24] - FA & Robotics Segment: This segment is projected to be a core growth engine, with potential revenues reaching Rmb4.5 billion by FY28 under the bull case scenario [18][19] Strategic Initiatives - Diversification: Since 2022, Hengli has focused on diversifying its business to reduce reliance on excavator products and supply chain concentration [11][40] - New Product Development: Expansion into linear motion products and humanoid robotics is expected to contribute to revenue from 2025 onward [11][40][29] Margin and Profitability - Gross Margin: 2Q25 gross margin reached 44%, the highest since the 2020 upcycle, with expectations for further improvement as product mix shifts towards higher-value models [16][30] - Long-term Margin Potential: Management believes there is no upper limit to margin improvement as new products ramp up and manufacturing efficiency is optimized [30] Risks and Challenges - Market Risks: Key risks include lower-than-expected excavator sales volumes, slower market share gains for pumps and valves, and potential trade tensions leading to higher tariffs [42] - Execution Risks: The FA & robotics segment faces risks related to slower adoption and execution delays, which could impact revenue growth [19] Additional Insights - Market Share Expansion: International markets remain underpenetrated, with significant opportunities for share gains, particularly in Japan and Europe [23] - Non-Excavator Segments: Growth in agricultural machinery and new energy segments, with plans for a new plant in Brazil to capture market share [27] - Aerial Work Platforms: Currently weak demand, but Hengli is positioned to capitalize on recovery when market conditions improve [28] Valuation - Price Target: DCF-based price target raised to Rmb116 from Rmb105, reflecting the bullish outlook on growth and profitability [12][17] - Valuation Metrics: The company is expected to maintain strong financial ratios, with a projected revenue growth of 14.6% in FY25 and 19.8% in FY26 [10] This summary encapsulates the key takeaways from the conference call, highlighting the company's strong market position, growth potential, and strategic initiatives while also addressing the associated risks and challenges.