Takeaways from plant visit: More positive than we thought

恒立液压(601100)
    We arranged a site visit tour for investors to Hengli’s production base inChangzhou on 3 Jun. Key takeaways include: (1) Strong demand for linearguideways driven by machine tools and semiconductor segments; (2) Hugepotential for ball screws for humanoid robots due to strong commitment from themajor customer; (3) Capacity for cylinders, pumps and valves are running at fullutilisation driven by a wide range of downstream demand such as miningequipment and agricultural machinery. We revise up our 2027E/28E earningsforecasts by 4%/7%, due to higher volume assumptions. We now forecastPrecision Industry revenue (linear guideways & ball screws) to increase fromRMB80mn in 2025 to RMB0.4bn/1bn in 2027E/28E. We revise up our TP toRMB125 (from RMB109), based on 48x 2026E P/E, 1.5SD above the historicalaverage (previously 1SD). Our expanded premium is to reflect both the upcycleof hydraulic business and the huge growth potential of precision business.Reiterate BUY.
    Key takeaways:
    Linear guideways: At present, 90% of the linear actuator products arelinear guideways which are produced in Changzhou factory. The productsare applied in machine tools and semiconductor sectors which saw verystrong demand. High precision is required in these applications.
    Ball screws for humanoid robots: A typical humanoid robot needs a totalof 14 ball screws (4 for each leg; 3 for each arm excluding fingers). Henglibelieves the keys to success in ball screw business include (1) productdesign; (2) production yield rate (for cost reduction); and (3) inspection (forproduct quality). Hengli has strong bonding with the major overseascustomer and can participate in certain product design. Hengli’s productscurrently account for <10% of the total value of a humanoid robot but willpotentially increase to 10-20% in the future. According to Hengli, ball screwshipment volume is insignificant at the moment but is expected to see strongvolume growth in 2H26E, and it will likely allocate the production of ballscrews to Mexico plant. We expect Hengli will further expand its capacityover the coming years.
    Strong growth across hydraulic business lines: Demand for excavatorcylinders, pumps & valves is robust, and capacity is running at full utilisation.For instance, strong mining activities in Africa have boosted highreplacement demand for mining equipment. For pumps & valves, Hengli isconfident of increasing their penetration in the major US machinerymanufacturer (10% at present), as the Japanese hydraulic componentsmakers have just raised ASP.