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On Monday, Morgan Stanley (NYSE:MS) upgraded Leader Harmonious Drive Systems (688017:CH) stock rating from Underweight to Equalweight, maintaining the price target at RMB138.00. The adjustment followed a revision of the company’s net profit forecasts for the years 2025 and 2026, decreasing by 2% and 5%, respectively. The downgrade in profit expectations was attributed to weaker-than-anticipated financial results in the fourth quarter of 2024 and the first quarter of 2025.
Analysts at Morgan Stanley noted that Leader Harmonious is facing increased margin pressure due to a growing number of competitors in the harmonic reducer market, coupled with softening demand from downstream sectors. Despite these challenges, the firm acknowledges the company’s potential in the humanoid robotics sector, although it may take time to materialize.
In valuing Leader Harmonious, Morgan Stanley employed a sum-of-the-parts (SOTP) methodology. The core business was assigned a 60x multiple on the projected earnings per share (EPS) for 2025, aligning with the valuation of its peer, Harmonic (NASDAQ:HLIT) Drive (6324.T), and was valued at RMB25 per share. The humanoid robotics segment was approached with a discounted cash flow (DCF) analysis, reflecting updated global volume forecasts but tempered by lower margins due to increased competition. This segment was valued at RMB113 per share.
Combining the valuations of both business segments, Morgan Stanley reiterated its price target of RMB138, which remains unchanged. Despite the stock’s valuation appearing stretched, trading at over 300 times the projected 2025 earnings, Leader Harmonious’ shares have declined by approximately 23% from their 52-week high of RMB192. The firm’s upgrade to Equalweight is based on the belief that Leader Harmonious is a promising player in the humanoid robotics field and has a higher likelihood of securing significant orders in the future.
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