Jiangsu Hengli Hydraulic (601100): 4Q25 Misses Morgan Stanley and Consensus Estimates on Margins
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Morgan Stanley reports that Jiangsu Hengli Hydraulic (601100.SS) delivered mixed 4Q25 results, with revenue significantly exceeding expectations while profitability fell short. Fourth-quarter revenue reached Rmb9.38 billion, representing 28% year-over-year growth and outpacing both Morgan Stanley's 25% and consensus 19% projections. This robust top-line performance was primarily driven by strong growth in non-excavator hydraulic components and pump valve businesses.
However, gross margin contracted by 6 percentage points annually to 41%, resulting in a 10% net profit decline, missing Morgan Stanley's 19% growth and consensus 12% growth estimates. The margin compression stemmed from unfavorable product mix shifts, price pressure from Chinese customers, operational impacts from the Mexican plant and screw business, and foreign exchange headwinds. Additionally, FX losses and impairment charges related to the Mexican facility further dragged down net income.
Despite anticipating short-term negative stock reactions, Morgan Stanley maintains an Overweight rating with a target price of Rmb133. The valuation employs a sum-of-the-parts methodology: applying a 35x 2026 price-to-earnings multiple to the core business and a DCF approach to the humanoid robotics component segment, assuming an 11% WACC and 4% terminal growth rate. The target implies 29% upside from the April 20 closing price of Rmb103.32. Key upside risks include faster-than-expected humanoid robot adoption, while downside risks center on weakening domestic excavator demand.