中国自动化的雄心

Why read this report?

l  The pandemic and China’s push to be more self-sufficient are pushing manufacturers to invest more in automation… 

l  …with domestic automation leaders well-positioned to take market share from global peers 

l  Initiate on automation leader Inovance at Buy (our top pick), relayfocused Hongfa at Buy, and more slowly growing Siasun at Hold

A self-sufficiency story…

It is well-known that China is seeking to become more sufficient in areas from semiconductors to electric vehicles. However, for this to become a reality, manufacturers need to become more automated. And that means a lot more spending on automation equipment like robots, motion controllers, and inverters. That’s the long-term argument for China’s automation industry and the focus of this report, but the short term is just as positive. The pandemic has pushed manufacturers to adjust their supply chains and buy more from local vendors. That means domestic automation leaders are particularly well-placed, given their competitive products, high R&D spend, and faster response times to local customer needs.

…and a market share gain story.

China has a lot of catching up to do to match and beat the latest technology by global peers that currently dominate the industrial automation industry. We think domestic companies will benefit as the local industry is set to grow at 10% in 2021e and 5% in 2022e, driven by the continued recovery in China’s industrial sector and the pick-up in automation adoption. In particular, we see solid demand from industries like semiconductors and renewable energy.

Three initiations

Inovance. China’s leading industrial automation company (by revenue) and our preferred stock in the A-share industrial automation space. It is a major beneficiary of China’s manufacturing upgrade, import substitution, and rapid growth in new energy vehicles (NEVs). It is one of a few domestic companies that has broken into the high-voltage inverters segment. We have an above-consensus 56% EPS CAGR in 2020-22e. Our PE-based target price (73x PE) of RMB118.00 implies 24% upside from the current share price; as such, we initiate at Buy. Potential share price catalysts: market share gains in high-end automation and faster penetration at global NEV brands.

Hongfa. A top-four global company (by market share) in manufacturing relays, electrically-operated switches that control the flow of electricity – and the largest relay manufacturer in China. This makes it a beneficiary of the rapid growth in NEVs as these vehicles require many relays. We estimate a 22% EPS CAGR in 2020-22e. Our PE-based target price (48.9x PE) of RMB67.20 implies 21% upside from the current share price; as such, we initiate at Buy. Potential share price catalysts: market share gains in domestic and overseas auto relay markets, and a rapid ramp-up of its low-voltage business.

Siasun Robot. The company is a manufacturer of automation equipment like industrial robots and automated traffic systems. Its largest shareholder is the Chinese Academy of Sciences, which helps provide it with cutting-edge technology. Our PB-based target price (2.4x PB) of RMB10.40 implies 12% downside from the current share price; considering its potential business recovery and the solid industrial robot outlook in China, we initiate at Hold.