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On Thursday, JPMorgan resumed coverage on Leader Harmonious Drive Systems (688017:CH), a key supplier in the industrial robot sector, assigning a Neutral rating with a revised price target of RMB109.00, a significant increase from the previous target of RMB44.00.
The financial institution's assessment acknowledges Leader Drive as a leading harmonic drive supplier, which has shown resilience in its financial health compared to its peer, Estun Automation.
Leader Drive's performance in the first half of 2024 indicated an impact on its margins and returns. Nonetheless, the company's balance sheet remained robust, with a net cash position contrasting with the higher gearing levels of Estun Automation. JPMorgan's valuation of Leader Drive is grounded in a discounted cash flow (DCF) analysis, which suggests that there is approximately a 15% potential upside from the market close on September 30, 2024.
The price target of RMB109 is based on a price-to-earnings (P/E) multiple of around 115 times. This valuation reflects the company's future financial prospects, incorporating a weighted average cost of capital (WACC) of 9% and a terminal growth rate of 5%. This approach underscores the company's solid financial standing and its positioning within the industrial robotics supply chain.
JPMorgan's outlook for Leader Drive is cautiously optimistic, factoring in both the challenges faced in the earlier part of the year and the company's ability to sustain a strong balance sheet amidst industry pressures.
The new price target represents an expectation of growth and stability for the company, as it continues to navigate the dynamics of the industrial robotics market.
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