UOB Kay Hian
April 30, 2025

Estun Automation: Navigating Recovery and Trade War Risks – Comprehensive Financial and Strategic Analysis

Overview and Investment Recommendation

Estun Automation (002747 CH), a leading developer and manufacturer of mechanical equipment with a focus on metal forming and electro-hydraulic robotic machines, is under the spotlight following its latest quarterly results. UOB Kay Hian maintains a SELL rating on Estun, with an increased target price of RMB 14.50, reflecting ongoing trade war uncertainties and a track record that continues to challenge investor confidence.

• Current Share Price: RMB 19.17
• Target Price: RMB 14.50 (previously RMB 8.10)
• Potential Downside: -24.4%
• Market Capitalization: RMB 16,669 million (approx. USD 2,416 million)
• Shares Outstanding: 870 million
• Major Shareholders: NJ Paileisite Tech Co (29.40%), Wu Bo (12.80%)

Recent Financial Performance: Mixed Signals

1Q25 Results: Recovery in Sight

• Revenue rose 24% year-over-year to RMB 1,244 million, signaling a rebound in end-demand for industrial robots and improved cost control.
• Core net profit returned to a positive RMB 4 million, breaking a five-quarter streak of losses.
• Reported net profit surged 93.4% year-over-year to RMB 13 million, driven by revenue growth and a 1.6ppt improvement in operating margin.
• Gross margin for the quarter stood at 28.3%.

4Q24: A Disappointing Quarter Now in the Rearview

• Revenue plummeted 55.0% year-over-year to RMB 642 million, mainly due to a sharp decline in Cloos robot shipments.
• Operating expenses soared, with the opex ratio rising to 67% because of poor scale.
• Estun booked a RMB 401 million goodwill impairment loss related to Cloos, which missed its sales target.
• Net loss for the quarter was RMB 744 million, worse than its previously announced profit warning range.

Key Financials Table

2025 Guidance and Strategic Priorities

• Robot Shipments: Targeting 35,000 units for Estun-branded robots in 2025, up from approximately 29,000 units in 2024; 7,600 units have already shipped in 1Q25.
• Cloos Robots: Aim to maintain stable shipments and sales, with a focus on cost reduction and efficiency improvements.
• Margins: Management expects margin improvements for 2025, though still shy of the historical 33% average.
• Cost Cutting: Enhanced cost-cutting measures are expected to yield a better opex ratio in 2025.
• Impairments: No further goodwill impairments anticipated, as realistic sales targets for Cloos have been set.

Growth Drivers and Market Outlook

• Sector Recovery: End-markets such as Li-ion batteries are showing a meaningful recovery, positioning them and the 3C sector as key growth drivers for Estun’s industrial robots throughout 2025.
• Average Selling Price (ASP): Expected to remain stable with no further price cuts planned, as inventory levels are manageable.
• Market Share: The company aims to increase market share at the expense of foreign competitors, especially in high-end segments like the automotive sector.
• Overseas Expansion: Higher growth is anticipated overseas due to a low base, with positive client feedback thus far.

Trade War Risks: Headwinds and Opportunities

• Tariff Exposure: Estun has around RMB 200 million in US market exposure through Cloos Germany. No immediate impact has been seen due to a temporary 90-day exemption, but prolonged tariff tensions could slow client capex spending.
• Import Substitution Opportunity: Should trade friction intensify, Estun could benefit from increased import substitution in the long run.

Humanoid Robots: Deliberate Progress and Industrial Focus

• Estun’s humanoid robot business remains separate due to high expenses and a focus on industrial rather than service applications.
• The company plans to release two sample humanoid robots using different technological routes, embedding AI features within a few months.
• Key industrial applications under development include welding, loading/unloading, and handling.

Earnings Revision and Valuation

• 2025-26 net profit forecasts have been cut by 59% and 30.3% respectively, now at RMB 63 million and RMB 194 million, reflecting reduced expectations for Cloos sales and automation parts growth, offset partly by stronger Estun robot sales and improved margin recovery.
• 2027 net profit is forecasted at RMB 204 million.
• The target price is now based on a 2026F PE multiple of 65.1x, in line with Estun’s five-year historical forward mean.
• The outlook is still clouded by trade war uncertainties and a limited track record of execution, despite optimism that the worst is over.

Key Estimate Changes Table

Balance Sheet, Cash Flow, and Key Metrics

• Debt remains high: Net debt to equity projected at 174.5% in 2024, gradually improving to 140.7% by 2027.
• Profitability metrics: Net margin expected to recover from -20.2% in 2024 to 3.8% by 2026-2027. ROE to rebound from -37.2% in 2024 to 7.8-7.9% in 2026-2027.
• Cash flow: Operating cash flow is set to improve significantly, with a projected inflow of RMB 549 million in 2025.

Conclusion: Cautious Optimism Amid Persistent Headwinds

Estun Automation is on the mend after a turbulent 2024, but substantial risks remain. While management’s guidance for 2025 is constructive—highlighting shipment growth, cost controls, and margin recovery—the shadow of trade tensions and execution uncertainty lingers. Investors should weigh the prospects of a cyclical upturn against the company’s high valuation and challenging track record.

About UOB Kay Hian

This analysis was prepared by UOB Kay Hian, a prominent broker providing in-depth research and investment insights for Asian markets.