Shenzhen Inovance Earnings: Automation Holding Up While Electric Vehicles Margins Fall Short

We lower our fair value estimate on narrow-moat Shenzhen Inovance to CNY 56 from CNY 60 per share after management hinted at worse full-year 2024 net profit outlook stemming from lower gross margins at general automation and a higher proportion of revenue from electric vehicles, or EVs, which have lower profitability. Thus, we have trimmed our gross margin assumptions, along with nonoperating items. We view Inovance’s shares as undervalued as intensifying competition is priced in, but the market is still too bearish on economic recovery and Inovance’s ability to capture market share in customers of heavy industries.