Jiangsu Hengli (601100 CH)

Takeaways from plant visit: More positive than we thought

We arranged a site visit tour for investors to Hengli's production base in Changzhou on 3 Jun. Key takeaways include: (1) Strong demand for linear guideways driven by machine tools and semiconductor segments; (2) Huge potential for ball screws for humanoid robots due to strong commitment from the major customer; (3) Capacity for cylinders, pumps and valves are running at full utilisation driven by a wide range of downstream demand such as mining equipment and agricultural machinery. We revise up our 2027E/28E earnings forecasts by 4%/7% , due to higher volume assumptions. We now forecast Precision Industry revenue (linear guideways & ball screws) to increase from RMB80mn in 2025 to RMB0.4bn/1bn in 2027E/28E. We revise up our TP to RMB125 (from RMB109), based on 48x 2026E P/E, 1.5SD above the historical average (previously 1SD). Our expanded premium is to reflect both the upcycle of hydraulic business and the huge growth potential of precision business. Reiterate BUY.

Key takeaways:

Linear guideways: At present, 90% of the linear actuator products are linear guideways which are produced in Changzhou factory. The products are applied in machine tools and semiconductor sectors which saw very strong demand. High precision is required in these applications.

Ball screws for humanoid robots: A typical humanoid robot needs a total of 14 ball screws (4 for each leg; 3 for each arm excluding fingers). Hengli believes the keys to success in ball screw business include (1) product design; (2) production yield rate (for cost reduction); and (3) inspection (for product quality). Hengli has strong bonding with the major overseas customer and can participate in certain product design. Hengli's products currently account for <10% of the total value of a humanoid robot but will potentially increase to 10-20% in the future. According to Hengli, ball screw shipment volume is insignificant at the moment but is expected to see strong volume growth in 2H26E, and it will likely allocate the production of ball screws to Mexico plant. We expect Hengli will further expand its capacity over the coming years.

Strong growth across hydraulic business lines: Demand for excavator cylinders, pumps & valves is robust, and capacity is running at full utilisation. For instance, strong mining activities in Africa have boosted high replacement demand for mining equipment. For pumps & valves, Hengli is confident of increasing their penetration in the major US machinery manufacturer (10% at present), as the Japanese hydraulic components makers have just raised ASP.

Earnings Summary

(YE 31 Dec)

FY24A

FY25A

FY26E

FY27E

FY28E

Revenue (RMB mn)

9,390

10,941

13,144

15,324

17,675

YoY growth(%)

4.5

16.5

20.1

16.6

15.3

Adjusted net profit (RMB mn)

2,508.7

2,734.0

3,491.4

4,194.0

4,883.0

EPS(Reported)(RMB)

1.87

2.04

2.60

3.13

3.64

YoY growth(%)

0.4

9.0

27.7

20.1

16.3

Consensus EPS(RMB)

na

na

2.56

3.14

na

P/E(x)

61.0

56.0

43.9

36.5

31.4

P/B(x)

9.7

8.9

7.8

6.9

6.0

Yield(%)

0.6

0.8

1.0

1.2

1.4

Net gearing(%)

(49.8)

(51.1)

(45.4)

(51.2)

(52.0)

Source: Company data, Bloomberg, CMBIGM estimates

BUY (Maintain)

Target Price RMB125.00

(Previous TP RMB109.00)

Up/Downside 9.5%

Current Price RMB114.20

China Capital Goods

Wayne FUNG, CFA

(852) 39000826

waynefung@cmbi.com.hk

Stock Data

Mkt Cap (RMB mn)

153,121.6

Avg 3 mths t/o (RMB mn)

1,180.3

52w High/Low (RMB)

123.74/66.77

Total Issued Shares (mn)

1340.8

Source: FactSet

Shareholding Structure

WANG&#x27;s family

64.3%

Source: SSE

Share Performance

Absolute

Relative

1-mth

8.8%

5.9%

3-mth

9.2%

1.8%

6-mth

7.3%

-1.2%

Source: FactSet

12-mth Price Performance


Source: FactSet

Capital Goods - Strong sales of earthmoving machinery in Apr; price hikes planned for excavators - 11 May 2026 (link)

Jiangsu Hengli - 1Q26 EBIT +34% YoY above expectation; net profit dragged by FX loss-28 Apr 2026 (link)

Jiangsu Hengli - 4Q25 earnings miss on gross margin and FX loss; But structural growth outlook still intact - 21 Apr 2026 (link)


Figure 1: Change in key assumptions on Hengli

Old

New

Change

(RMB mn)

2026E

2027E

2028E

2026E

2027E

2028E

2026E

2027E

2028E

Revenue

Hydraulic cyclinder

5,734

6,361

6,988

6,112

6,781

7,453

6.6%

6.6%

6.6%

Hydraulic pump and valve

5,404

6,300

7,192

5,404

6,300

7,192

0.0%

0.0%

0.0%

Hydraulic system

443

492

541

463

532

585

4.3%

8.1%

8.1%

Component

1,025

1,179

1,320

1,070

1,604

2,326

4.3%

36.1%

76.2%

Revenue(hydraulic business)

12,607

14,332

16,042

13,049

15,218

17,556

3.5%

6.2%

9.4%

Other business

95

106

119

95

106

119

0.0%

0.0%

0.0%

Total revenue

12,702

14,438

16,161

13,144

15,324

17,675

3.5%

6.1%

9.4%

Gross margin(hydraulic business)

42.2%

42.5%

42.8%

42.1%

42.0%

42.2%

-0.1

-0.5

-0.7

Other business

95.0%

95.0%

95.0%

95.0%

95.0%

95.0%

0.0

0.0

0.0

Blended gross margin

42.6%

42.9%

43.2%

42.4%

42.4%

42.5%

-0.1

-0.5

-0.7

Change(ppt)

S&D expense ratio

-2.3%

-2.3%

-2.3%

-2.3%

-2.3%

-2.3%

0.0

0.0

0.0

Admin expense and R&D ratio

-12.3%

-12.2%

-12.2%

-12.3%

-12.2%

-12.2%

0.0

0.0

0.0

Net finance income/(expense)RMB mn

135

213

252

43

202

245

-68.4%

-5.0%

-2.8%

Net profit

3,472

4,036

4,585

3,491

4,194

4,883

0.6%

3.9%

6.5%

Source: Company data, CMBIGM estimates

Figure 2: Key assumptions on Hengli

(RMB mn)

2023

2024

2025

2026E

2027E

2028E

Revenue

Hydraulic cyclinder

4693

4761

5254

6112

6781

7453

Hydraulic pump and valve

3268

3583

4326

5404

6300

7192

Hydraulic system

292

296

385

463

532

585

Component

672

684

891

1070

1604

2326

Revenue(hydraulic business)

8926

9325

10856

13049

15218

17556

Other business

59

65

85

95

106

119

Total revenue

8985

9390

10941

13144

15324

17675

Revenue growth

Hydraulic cyclinder

2.4%

1.4%

10.4%

16.3%

10.9%

9.9%

Hydraulic pump and valve

18.6%

9.6%

20.7%

24.9%

16.6%

14.2%

Hydraulic system

15.1%

1.6%

30.0%

20.0%

15.0%

10.0%

Component

17.1%

1.8%

30.3%

20.0%

50.0%

45.0%

Revenue(hydraulic business)

9.3%

4.5%

16.4%

20.2%

16.6%

15.4%

Other business

96.0%

10.2%

29.9%

12.0%

12.0%

12.0%

Total revenue

9.6%

4.5%

16.5%

20.1%

16.6%

15.3%

Gross margin

Hydraulic cyclinder

41.2%

42.6%

39.7%

41.1%

41.6%

42.1%

Hydraulic pump and valve

47.6%

47.9%

48.8%

49.0%

49.0%

49.0%

Hydraulic system

38.7%

38.1%

34.4%

34.5%

34.8%

35.0%

Component

15.9%

14.5%

15.3%

15.8%

18.5%

23.0%

Gross margin(hydraulic business)

41.6%

42.5%

41.1%

42.1%

42.0%

42.2%

Other business

91.1%

93.9%

96.9%

95.0%

95.0%

95.0%

Blended gross margin

41.9%

42.8%

41.6%

42.4%

42.4%

42.5%

Source:Company data,CMBIGM estimates


Figure 3: Hengli's P/E band


Source: Bloomberg, company data, CMBIGM estimates

Figure 4: Hengli's P/B band


Source: Bloomberg, company data, CMBIGM estimates

Risk factors: (1) Slowdown of demand for hydraulic components; (2) slower-than expected new business development.


Financial Summary

INCOME STATEMENT

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec (RMB mn)

Revenue

8,985

9,390

10,941

13,144

15,324

17,675

Cost of goods sold

(5,220)

(5,368)

(6,392)

(7,565)

(8,834)

(10,161)

Gross profit

3,765

4,021

4,549

5,579

6,490

7,514

Selling expense

(186)

(217)

(254)

(302)

(352)

(407)

Admin expense

(404)

(592)

(649)

(762)

(873)

(1,007)

R&D expense

(694)

(728)

(705)

(854)

(996)

(1,149)

Others

(150)

(156)

(248)

(188)

(208)

(229)

Operating profit

2,330

2,328

2,692

3,472

4,060

4,722

Share of (losses)/profits of associates/JV

0

0

0

0

0

0

EBITDA

2,744

2,758

3,228

4,057

4,693

5,403

Depreciation

413

430

536

585

633

681

Interest income

382

146

(2)

45

204

247

Interest expense

(13)

(14)

(4)

(2)

(2)

(2)

Net Interest income/(expense)

369

131

(6)

43

202

245

Other income/expense

131

341

346

394

460

530

Pre-tax profit

2,830

2,800

3,032

3,909

4,722

5,497

Income tax

(326)

(288)

(292)

(410)

(519)

(605)

Minority interest

(5)

(4)

(6)

(7)

(8)

(10)

Adjusted net profit

2,499

2,509

2,734

3,491

4,194

4,883

BALANCE SHEET

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec (RMB mn)

Current assets

12,994

13,830

15,224

17,064

20,252

23,252

Cash & equivalents

8,124

7,883

8,871

8,952

11,451

13,250

Account receivables

2,767

2,756

3,269

4,653

4,835

5,818

Inventories

1,692

1,765

2,154

2,530

3,037

3,255

Prepayment

156

157

252

252

252

252

Other current assets

255

1,270

677

677

677

677

Non-current assets

4,901

5,808

6,447

6,767

6,939

7,063

PP&E

2,851

3,889

4,998

5,331

5,517

5,654

Deferred income tax

58

139

276

276

276

276

Investment in JVs&assos

0

0

0

0

0

0

Intangibles

467

439

451

437

424

410

Goodwill

0

0

0

0

0

0

Financial assets at FVTPL

0

0

0

0

0

0

Other non-current assets

1,526

1,342

723

723

723

723

Total assets

17,896

19,639

21,671

23,831

27,191

30,314

Current liabilities

3,099

3,379

3,821

3,635

4,294

4,328

Short-term borrowings

203

19

17

17

17

17

Account payables

1,297

1,136

1,792

1,607

2,266

2,300

Tax payable

154

160

231

231

231

231

Other current liabilities

1,445

2,064

1,780

1,780

1,780

1,780

Non-current liabilities

353

431

512

512

512

512

Long-term borrowings

0

0

20

20

20

20

Deferred income

175

212

253

253

253

253

Other non-current liabilities

179

219

239

239

239

239

Total liabilities

3,453

3,810

4,333

4,148

4,807

4,841

Total shareholders equity

14,391

15,775

17,280

19,618

22,311

25,390

Minority interest

52

54

58

65

74

83

Total equity and liabilities

17,896

19,639

21,671

23,831

27,191

30,314


CASH FLOW

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec (RMB mn)

Operating

Profit before taxation

2830

2800

3032

3909

4722

5497

Depreciation & amortization

413

430

536

585

633

681

Tax paid

(326)

(288)

(292)

(410)

(519)

(605)

Change in working capital

(225)

(195)

(1,256)

(1,944)

(31)

(1,166)

Others

(15)

(269)

(209)

2

2

2

Net cash from operations

2,677

2,479

1,811

2,141

4,807

4,410

Investing

Capital expenditure

(1,309)

(1,072)

(908)

(900)

(800)

(800)

Acquisition of subsidiaries/ investments

0

0

0

0

0

0

Others

(1,742)

(2,028)

51

(5)

(5)

(5)

Net cash from investing

(3,051)

(3,100)

(857)

(905)

(805)

(805)

Financing

Dividend paid

(831)

(939)

(939)

(1,153)

(1,501)

(1,803)

Net borrowings

(126)

(185)

43

0

0

0

Proceeds from share issues

0

0

0

0

0

0

Others

77

336

32

(2)

(2)

(2)

Net cash from financing

(880)

(788)

(864)

(1,155)

(1,503)

(1,805)

Net change in cash

Cash at the beginning of the year

6,886

8,124

7,883

8,871

8,952

11,451

Exchange difference

2,492

1,167

899

0

0

0

Cash at the end of the year

8,124

7,883

8,871

8,952

11,451

13,250

GROWTH

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

Revenue

9.6%

4.5%

16.5%

20.1%

16.6%

15.3%

Gross profit

13.3%

6.8%

13.1%

22.6%

16.3%

15.8%

Operating profit

7.9%

(0.1%)

15.6%

29.0%

16.9%

16.3%

EBITDA

7.5%

0.5%

17.0%

25.7%

15.7%

15.1%

Adj. net profit

6.7%

0.4%

9.0%

27.7%

20.1%

16.4%

PROFITABILITY

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

Gross profit margin

41.9%

42.8%

41.6%

42.4%

42.4%

42.5%

Operating margin

25.9%

24.8%

24.6%

26.4%

26.5%

26.7%

EBITDA margin

30.5%

29.4%

29.5%

30.9%

30.6%

30.6%

Adj. net profit margin

27.8%

26.7%

25.0%

26.6%

27.4%

27.6%

GEARING/LIQUIDITY/ACTIVITIES

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

Net debt to equity (x)

(0.6)

(0.5)

(0.5)

(0.5)

(0.5)

(0.5)

Current ratio (x)

4.2

4.1

4.0

4.7

4.7

5.4

Receivable turnover days

116.8

107.4

100.5

110.0

113.0

110.0

Inventory turnover days

120.9

117.5

111.9

113.0

115.0

113.0

Payable turnover days

91.6

82.7

83.6

82.0

80.0

82.0

VALUATION

2023A

2024A

2025A

2026E

2027E

2028E

YE 31 Dec

P/E

61.3

61.0

56.0

43.9

36.5

31.4

P/B

10.6

9.7

8.9

7.8

6.9

6.0

Div yield (%)

0.6

0.6

0.8

1.0

1.2

1.4

Source: Company data, CMBIGM estimates. Note: The calculation of net cash includes financial assets.



Disclosures & Disclaimers

Analyst Certification

The research analyst who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report. Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the Hong Kong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies covered in this report.

CMBIGM Ratings

BUY : Stock with potential return of over 15% over next 12 months

HOLD : Stock with potential return of +15% to -10% over next 12 months

SELL : Stock with potential loss of over 10% over next 12 months

NOT RATED : Stock is not rated by CMBIGM

OUTPERFORM : Industry expected to outperform the relevant broad market benchmark over next 12 months

MARKET-PERFORM : Industry expected to perform in-line with the relevant broad market benchmark over next 12 months

UNDERPERFORM : Industry expected to underperform the relevant broad market benchmark over next 12 months

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