UBS: Zhongkong Technology - PA Stabilization and Industrial AI Initiatives Priced In, Downgraded to Neutral
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UBS downgraded Zhongkong Technology (688777.SS) from Buy to Neutral, raising its target price to RMB 74.80 from RMB 59.00 based on a new sum-of-the-parts valuation. The stock has surged 43% year-to-date, effectively pricing in the anticipated recovery in process automation and the company's industrial AI initiatives. While UBS remains positive on the industrial AI business and a projected 2026 earnings inflection point, uncertainties regarding the long-term sustainable growth of industrial AI and a sluggish process automation outlook suggest balanced risk-reward at current valuations.
The new target price implies 80x 2026 estimated P/E. UBS projects 2026 revenue growth of 12%, with net margin expanding from 5.6% to 8.2%, driving a 65% increase in net profit. Industrial AI revenue is expected to scale from RMB 200m in 2025 to RMB 3bn by 2028, increasing its revenue share from 2% to 24%. However, broader process automation demand is forecast to decline 1% in 2026 before recovering in 2027. Consequently, UBS cut its 2025-27 EPS estimates by 70%, 55%, and 46%, respectively. The valuation method transitioned from P/E to SOTP, applying 40x P/E to the PA business and 13x 2028 P/S to industrial AI.