Nomura: Hengli Hydraulic (601100) Earnings Slightly Miss; Long-Term Growth Intact
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Nomura maintains a Buy rating on Hengli Hydraulic (601100 CH), increasing the target price from RMB 126.54 to RMB 131.12, implying 35.4% upside. In 2025, revenue grew 16.5% YoY to RMB 10.941 billion, slightly exceeding estimates. However, net profit of RMB 2.734 billion (up 9.0% YoY) slightly missed expectations due to a 1.25 percentage point gross margin decline to 41.58%, foreign exchange losses, and non-operating charges.
Underlying fundamentals remain robust. Excavator hydraulic product revenue grew over 20%, with mid-to-large excavator pump valve sales surging nearly 40% YoY, effectively breaking the foreign monopoly. The company is also expanding into non-excavator sectors such as marine engineering and water conservancy, accessing a total addressable market roughly three times the size of the excavator hydraulic market.
Additionally, the linear motion business is commercializing rapidly. By 2025, capacity reached 360,000 meters of high-precision guide rails and 70,000 sets of precision ground ball screws, serving over 300 customers. Nomura raised its 2026 and 2027 revenue forecasts by 6.6% and 7.6% to RMB 13.14 billion and RMB 15.42 billion, respectively. Net profit forecasts were increased by 2.9% and 8.5% to RMB 3.588 billion and RMB 4.485 billion. The valuation utilizes a 49x target P/E multiple based on 2026F EPS of RMB 2.68. Primary downside risks include weaker downstream demand, geopolitical tensions, and raw material price volatility.