Industrial Robots. Promising outlook for industrial robots amid smart manufacturing in China. Equity Research Machinery.
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1 ` Equity Research Machinery Industrial Robots Promising outlook for industrial robots amid smart manufacturing in China Ou Yafei SFC CE No. BFN GF Securities (Hong Kong) Brokerage Limited 29-3/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Contribution from the GF A-share research team: Luo Libo * luolibo@gf.com.cn * Please note that Luo Libo is not a registered licensee with the Securities and Futures Commission of Hong Kong and is not allowed to conduct regulated activities in Hong Kong. Downstream demand growing, substantial room for import substitution for core components With rising automation, use of industrial robots has gradually expanded in areas such as the auto, electronics, metals, and chemicals industries. Considering potential future applications, we expect more in-depth use of such robots in the auto, communication electronics, metal products, chemical plastics, and home appliance industries. The industry is concentrated on the upstream components market. As big overseas players have advantages in terms of cost and technology, they have benefited more from the early-stage development of the industry in China. Domestic companies have now also started to enter the core components sector. With the accumulation of technology and industrial resources, they are expected to make breakthroughs in this space. Four major global players dominating the market, China now a key growth driver Asea Brown Boveri, FANUC (6954 JP), KUKA AG (KU2), and Yaskawa Electric (656 JP) have dominated the global industrial robot market. As the industry matured, breakthroughs in technologies and techniques led to a continued narrowing of the technology gap between companies, eroding the market share of the top four. According to data from IFR, industrial robot sales in China accounted for 3 of the global total in 16, and robot density in the manufacturing sector was close to the global average, while robot density in the auto sector was even higher. As the scale of production and sales grows, Chinese robot companies are competing internationally and are likely to see a turning point in terms of costs, which should facilitate import substitution. Promising outlook along with economic growth and the engineer dividend Global sales growth of industrial robots is highly correlated with GDP growth. Whether the robotics industry is more of a cyclical or growth industry depends on each country s specific economic conditions and the industry s competitiveness. China s various types of automation equipment are also correlated with economic growth, but to varying degrees. Industrial robots are most strongly correlated with economic growth. The engineer dividend should drive technological breakthroughs in the industry. Industrial robots are becoming more popular in China, and key drivers include: 1) as external competition intensifies, manufacturers have begun to move towards self-developed robot production; 2) with rising labor costs and shorter robot recycling periods, companies are incentivized to improve production and management efficiency; 3) the industry is likely to benefit from long-term favorable policies. Investment highlights Domestic manufacturers are utilizing capital strength to quickly build a presence in the field through M&A. Many companies are also entering the industry via proprietary R&D, both of which are accelerating import substitution of industrial robots. We highlight three key themes for stock investment: 1) robotics manufacturers capable of proprietary R&D and production. We highlight Siasun Robot & Automation (324 CH) and Estun Automation (2747 CH). 2) Companies focusing on core components that are likely to make technological breakthroughs. We prefer Shanghai Electric Power (621 CH). 3) Downstream players with economies of scale in system integration, such as Topstar Technology (367 CH) and Huanghe Whirlwind (6172 CH). Risks Intensifying robotics industry competition; less-than-expected downstream investment; potential price hikes for overseas core components; slower-than-expected expansions. This is a summary of a report originally written in Chinese. Please contact us for more information of the original report. The Chinese version shall prevail in the event of any discrepancy between the two versions.
2 Figure 1: industrial robot sales breakdown by downstream sector Figure 2: 16 industrial robot sales breakdown by downstream sector. 汽车 Auto. 电子产品 Electronics 金属 Metal. 化学制品 Chemical. 食品 Food 其他 Others.. products Food 3% Chemical products 7% Metal 1 Others 14% Auto 35% Electronic Products 31% Figure 3: Global industrial robot sales Figure 4: Industrial robot sales volume 销售额 Sales (US$ ( 亿美元 m) ) 同比 YoY 工业机器人销量 Industrial robots ( sales 千台 volume ) (k) 同比 YoY % 2 15% 1 5% Figure 5: Global industrial robot ownership Figure 6: 16 industrial robot sales breakdown (by region) 全球工业机器人保有量 Global industrial robots ((k) 千台 ) 增速 Growth rate 16% 16 12% Others 23% China % 4% -4% Taiwan 2% Germany 7% U.S. 11% Japan 13% Korea 14% 2
3 Figure 7: China s industrial robot sales Figure 8: China s industrial robot sales volume 销售额 Sales (US$m) ( 亿美元 ) 同比 YoY 销量 Sales ( 千台 (k) ) 同比 YoY Figure 9: Global usage density of industrial robots (robots per 1k workers) Figure 1: Estimates of industrial robot density in the auto industry (robots per 1k cars) 全球 Global 日本 Japan 德国 Germany Korea 韩国 Korea 中国 China Global 全球 Japan 日本 Germany 德国 韩国 Korea 中国 China 3
4 Figure 11: Cost of industrial robots, domestically made vs imported (Rmb1k/robot) Sources: Journal of Mechanical Engineering, GF Securities Development & Research Center Figure 12: Estimates of China s industrial robots cost recovery cycle E 18E 19E Robot sales (Rmb 1k) Industrial robot sales volume (robots) 22,987 36,56 57, 68,556 87, Avg. price of robots (Rmb/robot) Changes in robot prices CAGR -4.18% -4% -4% -4% Disposable income per capita (Rmb) Wage growth 7.75% 8.98% 8.15% 7.76% 8% 8% 8% Total labor costs (Rmb) Year of depreciation Depreciation expenses (Rmb) Maintenance fees (Rmb) Total expenditures (Rmb) Cost saving (Rmb) Cost recovery cycle (years) Sources: Wind, Bloomberg, NBS, GF Securities Development & Research Center Figure 13: Sensitivity test of robots costs recovery cycle (year) Cost recovery cycle Cost reduction -2% -4% -6% -8% Wage growth 5% % % % % % Sources: Wind, Bloomberg, NBS, GF Securities Development & Research Center 4
5 Figure 14: Policies for the industrial robots industry Policy type Time Department Document Strategic focus 15.5 State Council Made in China MIIT Key Technology Roadmap of Made in China MIIT 16- Industrial Robots Industry Development Plan MIIT, General Administration Equipment Manufacturing Industry 16.8 of Quality Supervision, Standardization and Quality Improvement Plan Inspection and Quarantine Special policies Notice on Promoting Industrial Robots Industry to MIIT, NDRC Healthy Development MIIT Industrial Robots Industry Code of Practice MIIT 3- Year Plan on Promoting New Generation AI Industry Pilot projects 15.2 MIIT Key Points of 15 Raw Materials Industry Transformation Work Fiscal & taxes & imports 1.7 Ministry of Finance, Ministry Major Special Technological Import Taxes of Science and Technology Regulations 16.9 NDRC, Ministry of Commerce Favorable Import Technology and Product Catalogue (16) Ministry of Commerce FDIs Industry Guidance (16 Consultation Paper) Sources: MIIT, State Council, Liu Yuan, GF Securities Development & Research Center Figure 15: No. of China s industrial robot ownership and sales No. of industrial robot ownership Sales (units) Increase in ownership (units) Difference between increase in ownership and sales (units) Sources: IFR, Wind, GF Securities Development & Research Center Figure 16: Estimates for industrial robot sales and market size Estimates 17E 18E 19E E Avg. robot price estimates (Rmb/set) Demand growth 28% 28% 28% 28% Bull case Sales forecasts Market size (Rmb m) Demand growth 23% 23% 23% 23% Base case Sales forecasts Market size (Rmb m) Demand growth 18% 18% 18% 18% Bear case Sales forecasts Market size (Rmb m) Sources: IFR, Wind, GF Securities Development & Research Center 5
6 Figure 17: Industrial robot sales estimates (k units, base case) 历史销量 Sales 销量预测 Forecasts E 18E 19E E Sources: IFR, Wind, GF Securities Development & Research Center Figure 18: Core components market size estimates (Rmb m) Controller Body manufacturing Servo motors Decelerator Others % 12% 25% 22% 32% 9% 17E Bull case 18E E E E Bear case 18E E E E Bear case 18E E E Sources: IFR, Wind, GF Securities Development & Research Center 6
7 Figure 19: Companies in the industrial robot industrial chain Sector Sub-sector Domestic companies Estun Automation (2747 CH), step electric cor-a (2527 CH), Inovance Servo motor systems Technology (3124 CH), Invt Electric (2334 CH), Huazhong Numerical Control (3161 CH), Qianjiang Motorcycle (913 CH) Siasun Robot & Automation (324 CH), Cixing (337 CH), step Controllers electric cor-a (2527 CH), Inovance Technology (3124 CH), Estun Automation (2747 CH) Upstream Core components Mid-stream Body Downstream Integration system and sales Decelerators Body manufacturing System integration Dealers Third-party services Sources: GF Securities Development & Research Center Shanghai Electric Power (621 CH), Qinchuan Machine Tool & Tool Group (837 CH), Shuanghuan Driveline (2472 CH), Greatoo Intelligent Equipment (31 CH), Huaheng ( NEEQ), Qianjiang Motorcycle (913 CH) Siasun Robot & Automation (324 CH), STEP Electric (2527 CH), Topstar Technology (367 CH), Estun Automation (2747 CH), Yawei Machine Tool (2559 CH), Rifa Precision Machinery (25 CH), Shandong Weida Machinery (26 CH), Great Star Industrial (2444 CH) Topstar Technology (367 CH), Miracle Automation Engineering (9 CH), Yawei Machine Tool (2559 CH), Cixing (337 CH), Zhiyun Automation (397 CH), SanFeng Intelligent Conveying Equipment (3276 CH), Midea Group (333 CH), Gree Electric Appliances (651 CH), Kelai Mechatronics Engineering (6396 CH) Tianjin Luobote, Dongguan Yuanyi, Shanghai Beikeliangchen Shanghai Electric Group (61727 CH), Tarena International (TEDU US), Shenzhen Lensuo, Dolang 7
8 Rating definitions Benchmark: Hong Kong Hang Seng Index Time horizon: 12 months Company ratings Buy Stock expected to outperform benchmark by more than 15% Accumulate Stock expected to outperform benchmark by more than 5% but not more than 15% Hold Expected stock relative performance ranges between -5% and 5% Underperform Stock expected to underperform benchmark by more than 5% Sector ratings Positive Sector expected to outperform benchmark by more than 1 Neutral Expected sector relative performance ranges between -1 and 1 Cautious Sector expected to underperform benchmark by more than 1 Analyst Certification The research analyst(s) primarily responsible for the content of this research report, in whole or in part, certifies that with respect to the company or relevant securities that the analyst(s) covered in this report: (1) all of the views expressed accurately reflect his or her personal views on the company or relevant securities mentioned herein; and (2) no part of his or her remuneration was, is, or will be, directly or indirectly, in connection with his or her specific recommendations or views expressed in this research report. Disclosure of Interests (1) The proprietary trading division of GF Securities (Hong Kong) Brokerage Limited ( GF Securities (Hong Kong) ) and/or its affiliated or associated companies do not hold any shares of the securities mentioned in this research report. (2) GF Securities (Hong Kong) and/or its affiliated or associated companies do not have any investment banking relationship with the companies mentioned in this research report in the past 12 months. (3) Neither the analyst(s) preparing this report nor his/her associate(s) serves as an officer of the company mentioned in this report and has any financial interests or hold any shares of the securities mentioned in this report. Disclaimer This report is prepared by GF Securities (Hong Kong). It is published solely for information purpose and does not constitute an offer to buy or sell any securities or a solicitation of an offer to buy, or recommendation for investment in, any securities. The research report is intended solely for use of the clients of GF Securities (Hong Kong). The securities mentioned in the research report may not be allowed to be sold in certain jurisdictions. No action has been taken to permit the distribution of the research reports to any person in any jurisdiction that the circulation or distribution of such research report is unlawful. No representation or warranty, either express or implied, is made by GF Securities (Hong Kong) as to their accuracy and completeness of the information contained in the research report. GF Securities (Hong Kong) accepts no liability for all loss arising from the use of the materials presented in the research report, unless is excluded by applicable laws or regulations. Please be aware of the fact that investments involve risks and the price of securities may be fluctuated and therefore return may be varied, past results do not guarantee future performance. Any recommendation contained in the research report does not have regard to the specific investment objectives, financial situation and the particular needs of any individuals. The report is not to be taken in substitution for the exercise of judgment by respective recipients of the report, where necessary, recipients should obtain professional advice before making investment decisions. GF Securities (Hong Kong) may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in the research report. The points of view, opinions and analytical methods adopted in the research report are solely expressed by the analysts but not that of GF Securities (Hong Kong) or its affiliates. The information, opinions and forecasts presented in the research report are the current opinions of the analysts as of the date appearing on this material only which may subject to change at any time without notice. The salesperson, dealer or other professionals of GF Securities (Hong Kong) may deliver opposite points of view to their clients and the proprietary trading division with respect to market commentary or dealing strategy either in writing or verbally. The proprietary trading division of GF Securities (Hong Kong) may have different investment decision which may be contrary to the opinions expressed in the research report. GF Securities (Hong Kong) or its affiliates or respective directors, officers, analysts and employees may have rights and interests in securities mentioned in the research report. Recipients should be aware of relevant disclosure of interest (if any) when reading the report. Copyright GF Securities (Hong Kong) Brokerage Limited. Without the prior written consent obtained from GF Securities (Hong Kong) Brokerage Limited, any part of the materials contained herein should not (i) in any forms be copied or reproduced or (ii) be re-disseminated. GF Securities (Hong Kong) Brokerage Limited. All rights reserved. 29-3/F, Li Po Chun Chambers, 189 Des Voeux Road Central, Hong Kong Tel: Fax: Website: 8
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