Equity Research Machinery Industrial Robots Breakthrough for core components; import substitution accelerating Ou Yafei SFC CE No. BFN410 oyf@gf.com.cn +86 20 8757 3009 GF Securities (Hong Kong) Brokerage Limited 29-30/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 +86 21 6075 0636 * 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. Breakthrough for core components; import substitution accelerating Reducers are mainly used to adjust the speed and transmission of loads, with a high level of accuracy. They have high technical barriers and are the most important factor in the cost of domestic robots. At present, the overall quality of domestic products is improving, and has reached the international level in terms of some core indicators. Orders of domestic reducers have been on the rise since last year, and import substitution has accelerated significantly. Shanghai Huanyan and Efort have purchased 18,000 reducer units from Nantong Zhenkang, and Bourunte (430394 NEEQ) has purchased 30,000 reducers from Zhongda Leader Intelligent Transmission (002896 CH). In addition, Suzhou Leaderdrive, CTKM (871601 NEEQ), and Laifual Harmonics Drive developed a series of products and entered mass production. Servomotors can be divided into direct-current and AC motors. High performance servo systems generally uses synchronous motors. At present, leading domestic manufacturers include Inovance Technology (300124 CH) and Estun Automation (002747 CH), and 15% are private companies. The controller, in essence, is a data processor, and there is little difference to foreign products in terms of hardware. The key difference is the algorithm and compatibility. Domestic suppliers of controllers include Googol Technology, Estun Automation (002747 CH), Guangzhou GSK. Estun Automation acquired TRIO to become a high-end motion control solutions provider. With the advancement of part and component companies from small-batch production to high-volume supply, localization of core components has enabled competitive companies to have greater flexibility in pricing. The wave of localization needs to penetrate the equipment industry at the bottom, which would be the only way to improve the industry s competitiveness. What impact does localization of core components have on domestic companies? We see three key impacts of localization: 1) For companies, it will lower the cost of production and expand production capacity. Localization will not necessarily lead to higher profit margins. Chinese companies are focusing more on market share growth rather than profit. 2) For integrated system manufacturers, lower costs will be positive for the popularity of robots, as it allows more companies to use robots. Rising downstream demand will also enhance the industry position of integrated system players. Moreover, there should be sales growth, which in turn will benefit the development of integrated system manufacturers. 3) In terms of business models, it will allow domestic companies to explore integrated models. Drawing on experience from international players, the big four companies have adopted an integrated model. We think the comprehensive industry chain model will be the development trend for industrial robot companies. For companies focused on core components, they should be able to secure higher profitability via this model. Investment highlights Foreign manufacturers have long dominated the industry dividends brought about by the potential in China s industrial robots. The domestic industry should increase focus on import substitution of core components. In terms of investment, we see three key themes: 1) companies that have R&D capabilities and a comprehensive industry chain with mass production. We highlight Estun Automation (002747 CH) and Siasun Robot & Automation (300024 CH). 2) Companies that put more effort into core component layout, which are likely to make breakthroughs in technology, such as Zhongda Leader Intelligent Transmission (002896 CH), Shanghai Mechanical and Electrical Industry (600835 CH), Shuanghuan Driveline (002472 CH) and Inovance Technology (300124 CH). 3) Downstream companies with advantages in terms of economies of scale and that are expanding upstream. We recommend watching Topstar Technology (300607 CH). Risks: More intense competition in the robots industry; less-than-expected localization of core components; macroeconomic fluctuations. 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.
Figure 1: Industrial robot cost breakdown Others Controller Reducer Ontology Servo motor Sources: Robot.ofweek.com, GF Securities Development & Research Center Figure 2: China s industrial robot demand for reducers and market size estimates 2015 2016 2017E 2018E 2019E 2020E Existing robots in China (10k units) 25.60 34.00 48.00 65.50 87.38 114.72 Robot sales in China (10k units) 6.86 8.70 14.00 17.50 21.88 27.34 Industrial robots sales breakdown (10k units) Six-axis articulated robot 4.65 5.90 9.49 11.87 14.83 18.54 SCARA robot 1.45 1.84 2.97 3.71 4.64 5.80 Articulated robot 0.41 0.53 0.85 1.06 1.32 1.65 Collaborative robot 0.20 0.25 0.40 0.51 0.63 0.79 Delta robot 0.14 0.18 0.29 0.36 0.45 0.56 Matched reducers sales breakdown Demand for RV reducer (10k units) 20.43 25.93 41.73 52.16 65.20 81.50 Avg. price of RV reducer (Rmb 10k) 0.8 0.65 0.50 0.47 0.43 0.40 RV reducer market size (Rmb 100m) 16.35 16.85 20.86 24.25 28.20 32.78 Demand for harmonic reducer (10k units) 15.86 20.13 32.40 40.50 50.62 63.28 Avg. price of harmonic reducer (Rmb 10k) 0.30 0.25 0.20 0.18 0.17 0.16 Harmonic reducer market size (Rmb 100m) 4.76 5.03 6.48 7.45 8.57 9.85 Estimations of total demand for reducers Total demand for reducers (10k units) 36.30 46.06 74.12 92.66 115.82 144.78 Reducer market size (Rmb 100m) 21.11 21.89 27.34 31.71 36.76 42.63 Sources: IFR, Wind, GF Securities Development & Research Center 2
Figure 3: Estimates of China s industrial robot demand for reducers (10k units) Harmonic reducer (10k unit) RV reducer (10k unit) Sources: IFR, Wind, GF Securities Development & Research Center Figure 4: China s industrial robot output (units/suits) Output (unit/suit) YoY growth Sources: NBS, GF Securities Development & Research Center Figure 5: Sensitivity analysis of impacts of precision reducer and robot body s price change on profitability Impact on prices Price changes in precise reducers Sources: Robot.ofweek.com, IFR, GF Securities Development & Research Center Note: Only change the prices of reducer, other costs remain constant Sensitivity analysis Robot body price 0% -1% -3% -5% -10% -15% -20% 0% 0.00% -1.01% -3.09% -5.26% -11.11% -17.65% -25.00% -3% 0.78% -0.22% -2.29% -4.44% -10.24% -16.73% -24.02% -6% 1.57% 0.57% -1.48% -3.62% -9.37% -15.81% -23.04% -10% 2.61% 1.63% -0.40% -2.52% -8.21% -14.58% -21.74% -15% 3.91% 2.94% 0.94% -1.14% -6.76% -13.04% -20.11% -20% 5.22% 4.26% 2.29% 0.23% -5.31% -11.51% -18.48% -25% 6.52% 5.58% 3.63% 1.60% -3.86% -9.97% -16.85% -30% 7.83% 6.90% 4.98% 2.98% -2.41% -8.44% -15.22% -40% 10.44% 9.53% 7.67% 5.72% 0.49% -5.37% -11.95% -50% 13.05% 12.17% 10.36% 8.47% 3.39% -2.30% -8.69% 3
Figure 6: Estimation of China s industrial robot recycling period Item 2012 2013 2014 2015 2016 2017E 2018E 2019E Robot sales (10k units) 671510 874230 1368360 1640765 2153900 - - - Industrial robot sales (units) 22,987 36,560 57,000 68,556 87,460 - - - Avg. price of robot (Rmb/suit) 292126 239122 240063 239332 246273 236422 226965 217886 Price changes in robots CAGR-4.18% -4% -4% -4% Disposable income per capita (Rmb) 24564 26467 28844 31195 33616 36305 39209 42346 Income growth 7.75% 8.98% 8.15% 7.76% 8% 8% 8% The number of replaceable workers per one robot 4 4 4 4 4 4 4 4 Total labor cost (Rmb) 98256 105868 115376 124780 134464 145221 156839 169386 Year of depreciation 8 8 8 8 8 8 8 8 Depreciation costs (Rmb) 36515.75 29890.25 30007.89 29916.51 30784.07 29552.71 28370.60 27235.78 Maintenance costs (Rmb) 29212.60 23912.20 24006.32 23933.21 24627.26 23642.17 22696.48 21788.62 Total cost (Rmb) 65728.35 53802.45 54014.21 53849.72 55411.33 53194.88 51067.08 49024.40 Cost savings (Rmb) 32527.65 52065.55 61361.79 70930.28 79052.67 92026.24 105771.73 120361.52 Period of cost recovery 8.98 4.59 3.91 3.37 3.12 2.57 2.15 1.81 Sources: Wind, Bloomberg, NBS, GF Securities Development & Research Center 4
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