Estun Automation Earnings: Fair Value Estimate Cut on Disappointing Growth and Margins

Estun’s 2023 and first-quarter 2024 results were disappointing. Revenue growth slowed to 7% year on year in the fourth quarter of 2023 and further to 2% in the first quarter of 2024 as customers cut capital expenditures. Moreover, gross margin fell by 5.5 percentage points year on year to 29.2% in the fourth quarter. Given significant overcapacity in the solar and lithium-ion battery industries, we think capacity expansion will scale back over the next few years, and that will weigh on Estun’s shipments. Therefore, we reduce our revenue estimates by 10%-12% for 2024-27. We also lower our gross margin assumptions by 50-300 basis points to reflect intensifying competition. As such, we cut our net income estimate by 13%-43% for 2024-27. Accordingly, we lower our fair value estimate to CNY 15 from CNY 17. The share price fell 11% after the results and is currently 6% above our fair value estimate. We think the shares are fully valued.