Inovance HQ in Shenzhen. Image source: company website
Component players to lead China’s industrial automation in Q2
Robotics may catch up in H2, UOB said.
China’s industrial automation sector will have to endure a gradual recovery in the near term as component players report strong second-quarter results while the top-performing robotics segment faces setbacks, according to a research note by UOB Kay Hian.
UOB said automation demand is recovering slowly following the dip in April caused by price cuts and sluggish demand, a trend seen in muted manufacturing PMI readings over the past two months.
While most leading automation firms were still able to register year-on-year growth, it said the figures were coming from a low base considering the lockdown’s impact last year. Nonetheless, UOB said domestic players have outperformed their foreign rivals due to better inventory management.
“We believe the industry is steadily recovering going forward and we still expect robots to outperform components in terms of growth this year,” UOB said. “However, the market's focus has now shifted to 2Q23 results, of which the component players may outperform robot names due to delays in deliveries during the quarter.”
Overall, the brokerage maintained an “overweight” rating on the sector.
READ MORE: China’s factory activity slows in June, manufacturers less optimistic: survey
The rebound was led by industrial automation solutions provider Inovance which reported 30-40% annual growth in new orders, or at least triple the 10-20% average growth rate seen across the industry in June.
Inovance is expected to pull ahead of its peers with a projected earnings growth of up to 20% year on year for the second quarter from muted performance in the first three months.
Estun, which specialises in industrial robotic solutions, is expected to deliver disappointing second-quarter results due to delayed shipments in the electric vehicle (EV) and Li-ion battery sectors.
Despite this, UOB believes the company will reclaim its top spot in the second half of the year on expectations the orders will only be pushed back to later quarters and will not be cancelled.
