UOB Kay Hian
April 30, 2025

Shenzhen Inovance 1Q25 Results: Recovery Gains Momentum but Trade War Risks Loom

Executive Summary

Shenzhen Inovance Technology (300124 CH), a leading player in China’s industrial automation and NEV (New Energy Vehicle) sectors, has delivered a strong rebound in 1Q25, posting robust revenue growth and improved sequential margins. Despite the positive start to the year, management remains cautious for 2025, citing potential headwinds from the ongoing trade war. UOB Kay Hian has downgraded the stock to HOLD, adjusting the target price to Rmb67.00 on the back of fair valuations and tempered profit forecasts.

Company Overview

• Business Description: Shenzhen Inovance develops, manufactures, and sells automated control products, including low-frequency converters, servo drivers, and programmable logic controllers (PLCs).
• Sector: Electrical Equipment
• Market Cap: Rmb180.9bn (US\$26.2bn)
• Shares Outstanding: 2,695 million
• Major Shareholder: Shenzhen Inovance Invest (17.4%)
• 52-week High/Low: Rmb81.71 / Rmb39.17
• FY24 NAV/Share: Rmb10.34
• FY24 Net Debt/Share: (Rmb0.73)

1Q25 Financial Highlights

• Revenue: Rmb8,978m (+38.3% YoY, -22.9% QoQ)
• Gross Profit: Rmb2,782m (+23.7% YoY, +1.0% QoQ)
• Operating Profit: Rmb1,108m (+68.8% YoY, -2.4% QoQ)
• Net Profit: Rmb1,323m (+63.1% YoY, +42.0% QoQ)
• Gross Margin: 31.0% (-3.7ppt YoY, +7.3ppt QoQ)
• Operating Margin: 12.3% (+2.2ppt YoY, +2.6ppt QoQ)
• Net Margin: 14.7% (+2.2ppt YoY, +6.7ppt QoQ)

Segment Performance

• General Automation: Rmb4.1b (+29% YoY)
• NEV & Rail Transit: Rmb3.9b (+66% YoY)
• Elevator Business: Rmb960m (+2% YoY)

2024 Review: Margin Pressures and Impairment Costs

• 4Q24 revenue was Rmb11.6b, broadly in line, but product mix deteriorated due to rapid NEV growth (+35% YoY) and declines in automation/elevator segments.
• Blended margin fell sharply to 23.7% (-6.3ppt YoY, -4.8ppt QoQ).
• Impairment loss of Rmb288m contributed to a net profit decline of 34.5% YoY to Rmb932m.

Key Financials and Valuation Metrics

2025 Guidance & Management Insights

• Revenue Growth: Management expects 10-30% YoY revenue growth for 2025, with net profit guidance set at 5-25% YoY.
• Orders: Year-to-date order growth reached a record high in March 2025, reflecting strong end-demand recovery.
• Trade War Impact: Direct exposure to the US market is minimal (Rmb30m-50m in sales), but indirect risks loom as export-oriented clients may delay capex amid geopolitical tensions. Management expects any disruptions to be short-term (3-6 months) and anticipates longer-term opportunities as domestic players gain share during trade frictions.
• Process Automation & New Products: The company projects 30-40% growth in end-user/process automation, driven by import substitution and the launch of new products (large PLCs, pneumatic components, industrial software). However, increased sales of lower-margin high-voltage inverters are expected to pressure overall automation margins, continuing the trend seen in 2024.
• NEV Segment: At least 30% YoY revenue growth is targeted, with bottom-line expansion expected to outpace sales. Growth drivers include increased market share (targeting a doubling of EV powertrain share to 20% over the long term), new product launches (including smart suspension), and accelerating overseas orders.
• Humanoid Robots: Inovance is actively developing 14 humanoid robot products, targeting 15-20% of industrial applications. Management sees this as a major long-term growth engine, but expects low profitability and intense competition over the next 1-3 years. The company is investing in software, core components, and system integration to build differentiated, one-stop solutions. Mass deployment is projected to be at least three years away.

Earnings Revision and Risks

• 2024-2025 net profit forecasts have been revised down by -8.3% and -5.3% to Rmb5,201m and Rmb5,707m, respectively. The downward adjustments reflect:
• Lower general automation revenue expectations
• Lower margin forecasts across all segments
• Partially offset by higher NEV sales and better cost control
• Key risks include margin pressure from product mix shifts, competitive intensity, and the indirect impacts of global trade tensions.

Valuation and Recommendation

• UOB Kay Hian maintains a HOLD rating, trimming the target price to Rmb67.00, which is based on a 35.5x 2025F PE, consistent with the company’s five-year average forward PE.
• Current valuation is considered fair given the balanced outlook of robust growth in some areas and margin pressure in others.

Key Estimate Changes

Profitability, Growth, and Leverage Metrics

• EBITDA Margin (2025F): 13.2%
• Pretax Margin (2025F): 11.3%
• Net Margin (2025F): 10.1%
• ROA (2025F): 7.3%
• ROE (2025F): 15.0%
• Debt to Total Capital (2025F): 7.2%
• Debt to Equity (2025F): 14.6%
• Net Debt to Equity (2025F): -6.1%
• Interest Cover (2025F): 30.9x

Conclusion: Near-Term Headwinds, Long-Term Opportunities

Shenzhen Inovance’s strong 1Q25 performance highlights the company’s resilience and the underlying recovery in automation and NEV sectors. Management’s conservative outlook, shaped by global trade uncertainties and margin headwinds, underscores the challenges ahead. However, the momentum in NEV, process automation, and the long-term promise of humanoid robotics position Inovance well for future growth. At current valuations, UOB Kay Hian recommends a HOLD, awaiting clearer signals on margin recovery and geopolitical stabilization.