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On Monday, Morgan Stanley (NYSE:MS) analysts adjusted their stance on Shenzhen Inovance Tech (300124:CH), raising the stock rating from Equalweight to Overweight and increasing the price target to RMB77.00, up from RMB75.00. The revision comes despite a reduction in net profit forecasts for the years 2025-26 by 12-13%, which takes into account the actual results for 2024 that were below expectations, as well as increased operating expenses from the company’s overseas expansion and new business investments planned for 2025.
In their valuation, Morgan Stanley employed a sum-of-the-parts (SOTP) approach. They have opted for a higher price-to-earnings multiple of 35 times the estimated earnings for 2025 for Inovance’s existing business, up from the previous 30 times, resulting in a revised value of RMB66, increased from RMB65. This adjustment reflects Inovance’s continued market share gains in the automation sector and the potential growth in the humanoid robot market following the company’s confirmation of its strategy in this area.
The analysts expect Inovance’s humanoid robots business to generate approximately RMB6 billion in revenue when global sales of humanoid robots reach 1 million units. This projection is based on an estimated market share of 9% for Inovance in the humanoid sector, an increase from the previously projected 7%, and a 2% share in frameless torque motors and actuator assembly. The valuation of this segment remains consistent with the average price-to-sales ratio of 5 times for comparable companies with humanoid robot businesses, leading to an increased value of RMB11, up from RMB9.
Combining the values of the existing business and the humanoid robot segment, Morgan Stanley set the new price target at RMB77. This figure represents an increase from the prior target of RMB72, signaling a positive outlook for Inovance Tech despite the revised profit estimates and the anticipated costs associated with expansion and investment initiatives.
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