Investment Highlights
Strong Q2 revenue performance, profit remained relatively stable despite impairment impact, meeting expectations. The company reported H1 2025 revenue of 66.5 billion yuan, up 22% YoY, with net profit attributable to shareholders of 7.7 billion yuan, up 19% YoY, slightly below the mid-point of guidance but meeting expectations. H1 2025 gross margin was 22.9%, down 0.2ppt YoY, and net margin was 11.5%, down 0.3ppt YoY. Q2 2025 revenue reached 36.2 billion yuan, up 23% YoY and 20% QoQ, with net profit attributable to shareholders of 3.8 billion yuan, up 13% YoY but down 1% QoQ. Gross margin was 23.4%, down 0.4ppt YoY and up 1.2ppt QoQ, while net margin was 10.6%, down 1ppt YoY and 2.3ppt QoQ, primarily due to impairment provisions of 490 million yuan and additional VAT payments of 260 million yuan, totaling 700 million yuan+ impact on profit. Adjusting for these items, net margin would still reach 12%+.
Expected stable 25%+ revenue growth for 2025 with operating net margin remaining essentially stable. In H1 2025, structural components accounted for 96.5% of revenue, with growth mainly driven by domestic customers. Overall market share maintained at around 40%, while overseas revenue was 2.5 billion yuan (3.8% of total), declining due to the bankruptcy of Sweden's NV. Looking ahead to Q3 2025, we expect revenue to grow approximately 15% QoQ, exceeding 40 billion yuan, with full-year 2025 revenue expected to surpass 150 billion yuan, representing 25%+ YoY growth. For 2026, we anticipate overall industry demand to maintain nearly 17% growth, with the company's growth likely to outpace industry rates. On profitability, structural component price decline is limited, and the company continues cost reduction and efficiency improvement efforts. We expect 2025 net margin to remain at 10-12%.
Multi-product robotics portfolio with accelerated customer expansion. Subsidiary Kemeng focuses on three product categories: harmonic reducers, cycloidal reducers, and rotary joint assemblies, emphasizing lightweight design. The harmonic reducer lineup features steel-aluminum composite harmonics, achieving 20-30% weight reduction. In 2025, it primarily serves industrial and collaborative robots, with humanoid applications already engaging domestic and international humanoid robot manufacturers. For cycloidal reducers, the company has samples ready and will begin customer sampling in H2 2025, targeting humanoid lower limbs and hip joints. On actuators, the company launched axial flux motor rotary joints, with customer sampling scheduled for H2 2025. With excellent manufacturing, management, and customer development capabilities, we expect reducer business to generate tens of millions in revenue in 2025, potentially becoming a second growth curve as humanoid robotics explodes.
Cash flow remains strong with low capital expenditure. Q2 period expense ratio was 9.5%, up 0.3ppt both YoY and QoQ, mainly due to R&D expense ratio increasing to 5.5%. Credit impairment was 500 million yuan, primarily from prudent provisioning as revenue increased, with asset impairment of 150 million yuan. Q2 operating cash flow was 7.5 billion yuan, up 11% QoQ. Capital expenditure was 1.8 billion yuan, down 13% YoY and 6% QoQ. End-Q2 inventory was 8.3 billion yuan, slightly down QoQ, maintaining low inventory levels.
Earnings Forecast and Investment Rating: We forecast 2025-2027 net profit attributable to shareholders of 18.1/21.7/26.1 billion yuan, representing 23%/20%/20% YoY growth respectively, essentially maintaining previous expectations, corresponding to PE ratios of 19x/16x/13x. Assigning 25x PE for 2026, we derive a target price of 198 yuan and maintain "Buy" rating.
Risk Factors: Intensified industry competition, weaker-than-expected downstream demand, raw material price volatility.
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