Estun Automation Earnings: Revenue Growth Decelerates Amid Gloomy Economic Outlook

As expected, Estun’s 002747 third-quarter revenue growth slowed to 11% year on year from 35% in the first half. Estun attributes the slowdown to customers pushing back delivery to the fourth quarter, which we think reflects the gloomy economic outlook in China and Europe. We maintain our revenue forecast at CNY 4.9 billion but increase our 2023 net income estimate to CNY 263 million from CNY 234 million after reducing our operating expense assumptions. Our net income forecast for 2024 remains CNY 440 million. We keep our fair value estimate at CNY 17, about 7% below current share price.

Estun’s revenue through September only reached 62% of its CNY 5.2 billion full-year target. While acknowledging the challenge, management maintains its target for 2023, citing that it’s working closely with customers to ensure on-time delivery. In addition, management aims for 30% revenue growth in 2024. However, we are not as optimistic.

To recap, Estun’s revenue grew 20% in 2021, 28% in 2022, and 27% year on year through September 2023. The robust growth was helped by import substitution and favorable exposure to new energy industry. Estun captured the surging demand for industrial robots over the last few years while international players were constrained by supply chain disruptions. However, we expect Estun to face more competition as the global supply chain normalizes. Estun also benefited from the exponential growth in solar and lithium-ion cell industries. But both industries are suffering from heavy overcapacity after aggressive expansions. We believe capital expenditure growth in the two industries will materially slow, if not turning negative, in 2024. Coupled with the dim economic outlook in its key markets China and Europe, we think 30% revenue growth target is very aggressive. As such, we maintain our revenue forecast at CNY 6.1 billion in 2024, up 23% year on year from our estimated 2023 level.