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On Thursday, JPMorgan revised its stance on Estun Automation Co Ltd (002747:CH), downgrading the stock from 'Neutral' to 'Underweight'. The financial firm also adjusted the company's price target to RMB11.00, a decrease from the previous RMB11.50. This change reflects a more cautious view of the company's financial outlook for the fiscal years 2024 to 2026.
The downgrade was prompted by a significant revision of Estun's future earnings forecasts, which were cut by approximately 50% on average. JPMorgan's analysis took into account recent operational and order trends that could impact the company's performance. The revised earnings outlook includes an anticipated 10% price reduction for Estun's products over two consecutive years, for FY24E and FY25E, due to heightened competition in the industrial robot market.
Despite Estun's cost control measures, such as headcount management and cost of goods sold (COGS) savings from product design and raw material procurement, JPMorgan believes these efforts will require time to significantly affect the company's financials. The firm's profitability is considered thin, and JPMorgan projects only a gradual improvement in net profit margin (NPM), from 0.7% in FY24E to 3.9% by FY26E.
JPMorgan's analysis also involves a re-evaluation of the appropriate price-to-earnings (P/E) multiple for Estun. The new target is based on a FY25E P/E multiple of 60 times, increased from the prior multiple of 35 times.
This adjustment is made in light of China's policy stimulus, which is expected to accelerate the factory automation cycle. However, even with this increased P/E multiple, the new December 2025 price target implies a potential downside of 29%.
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