Company Reports

As of December 2023, Estun Automation is the largest domestic industrial robot manufacturer and ranks second by shipment in China, a market that used to be dominated by foreign companies. As a late mover, Estun benefited from the exponential growth of emerging industries such as the photovoltaic and lithium-ion battery industries. It is one of the largest industrial robot suppliers to the photovoltaic industry, with a leading market share in photovoltaic typesetting. In addition, its robots have landed in the factories of top lithium-ion battery companies such as BYD and CATL. However, both industries are currently facing heavy overcapacity. This will weigh on Estun's shipment growth in the near term.

Estun’s net loss of CNY 80 million in the second quarter is in line with preliminary guidance and reflects sluggish downstream demand, notably in the solar industry, coupled with intense price competition. We now factor in weaker demand, leading to 5%-10% cuts to our revenue forecasts for 2024-28 and 14%-34% reductions in our net income estimates for 2025-28. We project Estun to stay profitable in 2024, but with a thin 0.6% net margin. Consequently, we cut our fair value estimate by 15% to CNY 11.30 per share, and consider the shares fairly valued.

Estun’s preliminary losses of CNY 65 million-CNY 85 million in the first half translates to CNY 72 million-CNY 92 million losses in the second quarter, falling short of our expectations and market consensus. Estun attributed the losses to declining sales and margin contraction due to a steep decline in shipments to new-energy industries, especially solar. We think the challenge will persist over the next two years, considering significant overcapacity in those industries. As a result, we slashed our 2024 earnings estimate by 95% to CNY 13 million, which barely breaks even. We also reduced our earnings estimates by 17%-55% for 2025-28. As a result, we lowered our fair value estimate by 11% to CNY 13.30. The shares fell 4% after the preliminary result and closed 2% below our fair value estimate on July 11. We suggest investors wait for a better entry point.

As of December 2023, Estun Automation is the largest domestic industrial robot manufacturer and ranks second by shipment in China, a market that used to be dominated by foreign companies. As a late mover, Estun benefited from the exponential growth of emerging industries such as the photovoltaic and lithium-ion battery industries. It is one of the largest industrial robot suppliers to the photovoltaic industry, with a leading market share in photovoltaic typesetting. In addition, its robots have landed in the factories of top lithium-ion battery companies such as BYD and CATL. However, both industries are currently facing heavy overcapacity. This will weigh on Estun's shipment growth in the near term.

Estun’s 2023 and first-quarter 2024 results were disappointing. Revenue growth slowed to 7% year on year in the fourth quarter of 2023 and further to 2% in the first quarter of 2024 as customers cut capital expenditures. Moreover, gross margin fell by 5.5 percentage points year on year to 29.2% in the fourth quarter. Given significant overcapacity in the solar and lithium-ion battery industries, we think capacity expansion will scale back over the next few years, and that will weigh on Estun’s shipments. Therefore, we reduce our revenue estimates by 10%-12% for 2024-27. We also lower our gross margin assumptions by 50-300 basis points to reflect intensifying competition. As such, we cut our net income estimate by 13%-43% for 2024-27. Accordingly, we lower our fair value estimate to CNY 15 from CNY 17. The share price fell 11% after the results and is currently 6% above our fair value estimate. We think the shares are fully valued.

As of December 2023, Estun Automation is the largest domestic industrial robot manufacturer and ranks second by shipment in China, a market that used to be dominated by foreign companies. As a late mover, Estun benefited from the exponential growth of emerging industries such as the photovoltaic and lithium-ion battery industries. It is one of the largest industrial robot suppliers to the photovoltaic industry, with a leading market share in photovoltaic typesetting. In addition, its robots have landed in the factories of top lithium-ion battery companies such as BYD and CATL. However, both industries are currently facing heavy overcapacity. This will weigh on Estun's shipment growth in the near term.

As expected, Estun's third-quarter revenue growth slowed to 11% year on year from 35% in the first half. Estun attributes the slowdown to customers pushing back delivery to the fourth quarter, which we think reflects the gloomy economic outlook in China and Europe. We maintain our revenue forecast at CNY 4.9 billion but increase our 2023 net income estimate to CNY 263 million from CNY 234 million after reducing our operating expense assumptions. Our net income forecast for 2024 remains CNY 440 million. We keep our fair value estimate at CNY 17, about 7% below current share price.

While Estun's June-quarter revenue grew by 47.5% year on year, we are slightly disappointed that its gross margin declined to 32.7%, which is lower than 33.5% in the same period last year and marks the second consecutive quarter of gross margin contraction. We believe this indicates intensifying competition in the industrial automation market in China. Given the tepid economic outlook in the second half of this year, we lower our 2023 revenue estimate to CNY 4,931 million from CNY 5,034 million and our net income estimate to CNY 234 million from CNY 287 million. We keep our fair value estimate at CNY 17. The shares closed 37% above our fair value estimate on Sept. 1. We think the current price has factored in very aggressive growth and margin expectations.

Estun recorded a strong fourth-quarter 2022 revenue growth of 86.3% year on year and 50.9% quarter on quarter, beating our expectation, but we note that first-quarter 2023 revenue growth has eased to 22.5% year on year. Nonetheless, the strong latter 2022 performance leads to us raising our 2023 revenue forecast to CNY 5.0 billion from CNY 4.4 billion, up 29.7% from 2022. We also increase our 2023 operating margin estimate to 8.6% from 6.4%. As a result, we increase our net income estimate to CNY 287 million from CNY 233 million, up 72.9% from 2022. We raise our fair value estimate to CNY 17.00 from CNY 15.70. The shares closed 34% above our new fair value estimate on April 28. We think the current share price has incorporated aggressive growth and earnings assumptions.

As of December 2022, Estun Automation is the largest domestic industrial robot manufacturer and ranks sixth by shipment in China, a market that is dominated by foreign companies. As a late mover, Estun focuses on emerging industries with big growth potential such as the photovoltaic and lithium-ion battery industries. It is one of the largest industrial robot suppliers to the photovoltaic industry, with a leading market share in photovoltaic typesetting. In addition, its robots have landed in the factories of top lithium-ion battery companies such as BYD and CATL. The photovoltaic industry plays an important role in the world’s carbon neutrality pledge, and the lithium-ion battery industry underpins the global transition to electrical vehicles. We think Estun is well positioned to capture the growth opportunity in these megatrends.

We initiate coverage of Estun Automation, a leading Chinese industrial automation and industrial robot company, with a fair value estimate of CNY 15.70. We assign a no-moat rating as we are not fully convinced of a moat at this stage, given its small installed base. But we assign a positive moat trend as we think both switching costs and intangible assets moat sources are strengthening. The shares closed 45% above our fair value estimate as of Dec. 13. We see more downside risk than upside potential at this price level. To support its current share price level, we think Estun will have to grow revenue at 31% CAGR, well above the 19.3% 2021-26 CAGR we project.

As of end-June 2022, Estun Automation is the largest and only domestic industrial robot manufacturer in the top five in China, a market that is dominated by foreign companies. As a late mover, Estun focuses on emerging industries with big growth potential such as the photovoltaic and lithium-ion battery industries. It is one of the largest industrial robot suppliers to the photovoltaic industry, with a leading market share in photovoltaic typesetting. In addition, its robots have landed in the factories of top lithium-ion battery companies such as BYD and CATL. The photovoltaic industry plays an important role in the world’s carbon neutrality pledge, and the lithium-ion battery industry underpins the global transition to electrical vehicles. We think Estun is well positioned to capture the growth opportunity in these megatrends.