Greater China Factory Automation & Industrial Robot Mid-year outlook (trimmed) + 2Q23 market share trends
In this note, we provide a mid-year outlook for China’s Industrial Automation Industry, in addition to a review of key trends in 2Q23 based on MIR databank’s latest reports. Despite initial optimism for a demand recovery post the LNY holidays given the COVID pivots, China’s FA demand continued its downward trend for the fifth consecutive quarter, with the pace of decline picking up to -11% Y/Y despite the low base (vs. -7%/-5% in 1Q23/2022). The demand rebound seen during late- Feb~Mar’23 proved to be short-lived, as the momentum eased off notably in 2Q23, as we highlighted in a recent note. As such full-year 2023 IA demand is likely to continue the downward trend, with MIR consultants trimming their forecasts for the year, as they expect 2H23 demand to be even weaker on a H/H basis with the pace of decline to accelerate on a Y/Y basis. A review of 2Q23 market trends suggests leading Chinese brands including Shenzhen Inovance (‘Inovance’), Estun Automation (‘Estun’), HCFA and INVT re-accelerated market share gains in the quarter across key FA product categories following a pause in 1Q23.
2Q23 earnings wrap (for those announced) and preview (for those not yet reported):
2Q23 earnings reported so far by Japanese and Taiwanese IA players largely missed expectations, including Yaskawa, FANUC, Keyence and AirTac, as China’s IA demand recovery has fallen short of their prior expectations. For Chinese IA companies, the ability to translate into comparable earnings growth continues to vary, while we expect to see broadly disappointing earnings prints for the upcoming 2Q23 results, with likely misses from Estun and Leader Drive (both rated UW), with Inovance as the exception as its pre-announced results indicated a 10~15% rise in earnings and met guidance and expectations.
Stock views:
Given the operational/earnings trends, our top OW picks include Inovance (300124 CH) and Keyence (6861 JP), following our recent downgrade on AirTac (1590 TT). On the other hand, we retain UW ratings on Estun (002747 CH) and Leader Drive (688017 CH), keeping N ratings on Hiwin (2049 TT), FANUC (6954 JP) and Yaskawa (6506 JP).
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