Earnings call transcript: Shenzhen Inovance Tech sees robust Q3 2025 growth

Shenzhen Inovance Tech reported a strong performance in Q3 2025, with a 25% increase in total revenue, reaching ¥31.7 billion, and a 27% rise in net profit attributable to shareholders. Despite these gains, the company’s stock dipped 1.1% to close at ¥78.38. The market reaction reflects a complex sentiment, balancing impressive growth figures against pressures on gross margins and increased R&D expenses.

Key Takeaways

• Total revenue rose 25% year-on-year to ¥31.7 billion.
• Net profit increased by 27% to ¥4.3 billion.
• Gross margin fell by 1 percentage point to 29.27%.
• R&D expenses surged 36%, now comprising 9.5% of revenue.
• Stock price declined 1.1% following the earnings release.

Company Performance

Shenzhen Inovance Tech demonstrated strong year-on-year growth in Q3 2025, with significant gains in both revenue and net profit. The company’s focus on industrial automation and new energy vehicles appears to be paying off, as these sectors are driving substantial growth. However, the decline in gross margin and increased R&D spending suggest challenges in maintaining profitability.

Financial Highlights

• Revenue: ¥31.7 billion, up 25% year-on-year
• Net Profit: ¥4.3 billion, up 27% year-on-year
• Gross Margin: 29.27%, down 1 percentage point
• R&D Expenses: ¥3 billion, up 36% year-on-year

Market Reaction

Following the earnings announcement, Shenzhen Inovance Tech’s stock fell by 1.1%, closing at ¥78.38. Trading at a P/E ratio of 41.2x and maintaining a 15-year dividend payment streak, the stock currently trades near its InvestingPro Fair Value. This decline is modest and suggests a mixed investor sentiment, as the market weighs the company’s strong growth against challenges in maintaining margins. The stock remains below its 52-week high of ¥12.78 but significantly above its low of ¥7.68, indicating resilience amidst volatility.

Outlook & Guidance

Looking forward, Shenzhen Inovance Tech is targeting a 30% revenue growth in its new energy vehicles segment and aims to enhance its net profit margin to 13-14%. The company plans continued investment in R&D and strategic technologies, with a focus on industrial automation and digital energy management solutions.

Executive Commentary

CEO Song Zheng He highlighted the importance of industrial automation, stating, "Industrial automation is the core part of smart manufacturing." He also emphasized the strategic direction, noting, "Software plus digital platform plus automation software is definitely going to be the definition."

Risks and Challenges

• The decrease in gross margin could affect profitability if not addressed.
• Rising R&D expenses may pressure short-term financial results.
• Competitive pressures in the new energy vehicle market could impact growth.
• Global market expansion poses logistical and operational challenges.
• Fluctuations in the semiconductor market may affect related business segments.

Q&A

During the earnings call, analysts focused on the company’s expansion strategy, particularly in overseas markets, and its approach to developing intelligent robot components. Questions also addressed pricing pressures and how the company plans to manage its margins amidst rising costs.

Full transcript - Shenzhen Inovance Tech (300124) Q3 2025:

Song Zheng He, Board Director/Secretary, Innovance: You will be muted. Now give you an announcement. For this conference, we are servicing the invited participants. The PowerPoint’s audios and minutes are for internal use, do not disseminate. For Innovance, we do not authorize any media to disseminate the content.

Without the authorization, this is regarded as infringement. We are going to hold everyone accountable of doing so. Innovance is not responsible for any losses caused by the dissemination and distribution. Investment is risky, please be cautious. Before the start, I would like to remind every investor that after the presentation, we’re going have Q and A session.

Now please allow me to give you the introduction of our management, the Board and Director and Board Secretary, Mr. Song Zheng He. Now give the floor to Mr. Song. Dear friends from the investment community, good afternoon.

Welcome everyone to attend the results announcement for Innovus twenty twenty five Q3. We are going to have two parts. The first one is that we are going to give introduction briefly about the performance of the top three quarters and then we’re going to have Q and A afterwards. While we are introducing or before we introducing the performance of the top three quarters, what I would like to do is to give you a brief overview about the business that we have. For this year, approximately, we had a revenue of exceeding billion.

Actually, we are always thinking about one issue that we have the scale of the volume of RMB40 billion and more of Innovus, how do we have a very sustainable and good growth? Where are our further spaces for growth? This is something that we’re always discussing in the management. In the 2024, all the way till 2025, we were sorting out the businesses that we had. What we have been seeing is that at current stage we do have the dual key businesses of industrial automation and innovative automotive that are having a very good leadership positioning in China.

We are actively thinking that for these two businesses and sectors, whether or not they’re still could be regarded as the golden tracks. And of course, what are the future potential for the further growth? Of course, I think that for the dual king, which is industrial automation and NMS automotive And the tracks that they’re on are pretty good and we should go with define them as golden tracks. We all know that the industrial automation is the core part of smart manufacturing. Of course, for smart manufacturing on top of industrial automation, we’re going to have also digitization and also integrating with artificial intelligence.

So in that case, we’re to have infinite possibilities for the future development of industrial automation. In the future, the smart manufacturing should be definitely defined as the integration of automation software and digital integration. This is what we believe that what Innovence is actually doing and this is what we believe has opportunities for us in the future. Second point is that for the industrial automation of Innovence, we are going to focus on overseas market in the future, which we’ve been talking to you a lot about this because the overall size of the overseas business is two to three times larger than of China and we are still having a very low market share in overseas. We have met difficulties while exploring our business abroad, but this is something that we have to be insisting on.

We have to do the overseas market well in order to become a truly globalized So we believe that this is actually the industry that we are in, which is a golden industry. Second point is that for industrial automation, this is the core part of smart manufacturing. For every customer, they have requirements and demands of a lot of products of industrial automation. So the features are that there are many of them and each of them are interconnected.

So we have three major components in the past, inverter, servo and controller system, we are extending that to sensors and precision machinery and all the other relevant products like pneumatics as well. So because we are actually sharing the same customer base, we could use the same production line on all of the customers’ production lines as well. So we do have a lot of opportunities for providing solutions or products. Based on the reasons that I have mentioned above, at the current stage, the industry that industrial automation is in still could be regarded as a golden one and we have a lot of potential for further growth. Point number two, I have to stress is another important business, which is Innovance Automotive that we are having, which is new energy vehicles.

For Innovance Automation automotives, we had successfully IPO ed and further layout our strategic leadership positioning here in China for electric drive and electric control. So in the future, for new energy vehicle, the development trend would be ADAS or intelligent vehicles. Whether intelligent vehicle will be an opportunity for Innovance Automotive? The answer is yes. For automated vehicle, as for the mechanical response, there is a very high requirement.

So for all the mechanical parts, we’re seeing electrification going on. For Innovance Automotive, we’re actually working on the business of intelligent chassis, without which we cannot have a very good development for the autonomous driving business. So while we have Xs, Y axis and Z axis that are electrified, we have a unique advantage for us if we have intelligent chassis, which is going to be bringing a lot of potential for growth. There is a heavy competition going on for new energy vehicle industry. But in the future, new energy vehicle is going be more intelligent.

And on top of the big mega and microelectric components, while having suspension system and wire control, we are going to have a lot of opportunities for us to grow for Innovent’s automotive business. And another one should be overseas key accounts. For Innovent’s automotive, where we started the business with electro control motor system, while at the same time, we’re expanding the overseas market with these categories. With years, we have been seeing a very good growth of our key accounts business from overseas, which is going to be offsetting the heavy competitiveness here in China. While analyzing upon that, industrial automation and new energy vehicle businesses are quite large for Innovance and we’re already becoming akin in these two areas, but still there are infinite possibilities for us to catch upon in the future.

So we should regard these two businesses as the golden businesses, which is the current one. Second point, big point I would like to say is that on top of these two key businesses, we have to catch the momentum of the growth for the technological development and demand development in the near future. Which one or which industries are going to be better in the future? You might be actually associate industrial robot all the way to intelligent robot. Everybody calls this humanoid robot, but I think that we rather call this intelligent robot because actually there are different form factors, not necessarily in the human shape.

So for intelligent robotic business, this is a very big industry. And at the same time, we have built a very solid foundation for this business development in the future. So for Innovence, this is also going to be the business that we have to be working on. Second point, the new growth curves are that, be it we’re talking about the AI computing power or the dual carbon emission reduction. There are lot of imaginations for the business of energy related.

So because of these two reasons, Innovance has been working quite actively on the area of intelligent robot and digital energy management businesses. At the same time, we have been doing some restructuring of our organization.

Unnamed Executive, Management Team Member, Innovance: That is

Song Zheng He, Board Director/Secretary, Innovance: to say, we’re going to form the business unit of intelligent robot and business unit of digital energy management. So that we are going to really working on a new organizational structure to be really nimble in catching the opportunities. So this is actually my pre phase talk that how they’re going to find sustainable growth opportunities on the basis of RMB40 billion plus revenue that we already had. And we have to catch the opportunity of the microenvironment and really have a big growth. In the future, except for the industrial automation and new energy vehicle businesses that we already had, we hope that we can have extra resources to focus on intelligent robots and digital energy management businesses.

So for Innovence, this is exactly we’ve been quite active on and should be regarded them as opportunities for business in the future. Right. Next, I would like to give you a sharing about the performance from the first quarter to 2025. The top three quarters, the overall revenue, operating revenue, 31,700,000,000.0 increasing by 25% against the heavy competition. I still believe that there are actually some of the accidental events influence.

So having 25% of the growth would be good enough because of the business of new energy vehicle and business growth of industrial automation. For China market, it is still quite competitive. But because of our very good brand power and our leadership positioning and because of our competitive edges on the products and solutions, we’ve been achieving a lot for the top three quarters. The second point would be the net profit attributable to shareholders, 4,300,000,000.0, increasing by 27%. So for 27% year on year increase, there are three attributes.

The first one is that very good revenue growth twenty five percent. And also on top of very good top line growth for the top three quarters, we had also very good control on the expenditures. So the three expenditures growth rate actually was lower than that of the revenue growth. And also, third of all, for the nonrecurring items, we actually had also contributed some of the parts to this. So the net profit attributable to the parent shareholders increased by 27%, 3,900,000,000.0 of MPABS excluding non current items increasing by 24% year on year.

So let’s take a look at the operating cash flow, JPY 3,900,000,000.0. Overall speaking, JPY 4,300,000,000.0 for the net profit attributable to the parent shareholders, there’s quite much in that. Even if we had a competitive environment because of our ability to catch opportunities, we had a very good management of our company. Gross margin for the top three quarters, 29.27% decreased by one percentage points. This is due to the changes of our product structure.

You can see that for the overall automotive business, this is actually increasing the contribution ratio to the overall revenue, which had a very low gross margin. So this has caused the overall downturn of the gross margin as a whole for the company. Actually for the top three quarters for the general automation industrial automation, the overall gross margin was pretty good. And then expenditures or expenses for three expenses selling, administrative, financial and R and D expenses for the top three quarters, 5,300,000,000.0, increasing by about 19% or 20% year on year. And the biggest growth was attributable to the R and D expenses with 3,000,000,000 spend on R and D increasing by 36% on the overall basis and the percentage of R and D accounts to the revenue is 9.5%.

So this particular high percentage of our revenue goes to the R and D is going to be a very important driver for us to have a continuous growth. For R and D business, so we are focusing on several areas. The first one is about the software. You all know that not long ago, we have been publishing some softwares and IFC products and some of the digital products as well as the industrial software related products, which need a lot of investments. And second is humanoid robot, which we’ve been quite active in promoting some components and parts.

And third is about the industrial I mean, intelligent chassis of automotive, which received all of R and D expenditures.

Unnamed Executive, Management Team Member, Innovance: And exactly because of those high R and D expenses and made Innovence be more confident in our future development. Okay. Now let’s take a look at quarter three specifically. In between July to September, operating revenue, 11,200,000,000.0, 21% year on year growth. And our industrial automation growth has been pretty fast, slowing down a little bit there with our automotive business because of the fierce competition and pressure on price.

So overall, our third quarter growth in operating revenue is slightly lower than that of the previous several quarters. And then net profit attributable to parent shareholders only 4% growth year on year. In between quarter one to quarter three, that is 4,300,000,000.0, a 27% growth year on year. And you can see this quarter three, only 4% growth year on year is a big dragging force of the total of quarter one, two, three, mainly due to the automotive business slowing down or slipping there caused our net profit in quarter three to be affected. And actually, our operation with industrial automation business blocks have been further stabilized with increased efficiency also growing in gross margin, high margin PLC, several products, etcetera, they’re growing pretty well and made the overall gross margin growing there, but still not enough to compensate for the dragging from automotive businesses.

M PAP’s JPY 1,200,000,000.0, 14% growth year on year compared to last year’s third quarter. Last year, in the third quarter, we have a plant a workshop moving from Suzhou, and there’s a government subsidy of $620,000,000 from government, and we don’t have that this year. And the expenses, 1,800,000,000.0, and of which the growth in R and D expenses is really the highest. We invested more than JPY 1,000,000,000 there. And then let’s take a look at the industrial operation.

General automation, 1,310,000,000.00 with a growth And overall, we can see this is a high quality business. Consider the scale, consider the revenue and the gross margin and growth rate, they’re all pretty decent. And General Automation business’ growth is like the stabilizer of our whole group’s business. NEV, this is from the group’s caliber, not of our innovative automotive.

You see here the revenue is JPY 1,440,000,000.00, 39% higher. Intelligent Elevator, JPY 3,600,000,000.0 remained flat. And now let’s take a look at General Automation. We believe the third quarter is 4,300,000,000.0 yen with a 25% growth year on year. Indeed, the number of orders in quarter three kept on growing.

We know that we had more pressure there with quarter two due to the trade war. A lot of downstream investments had made pauses. But in June, July, August and September, our order recovery from quarter two were pretty well, and it kept on growing and caused our Q3 General Automation revenue to be pretty nice there. Another reason is the high margin products, including servo and the PLCs have got pretty great results and increased the overall margin of General Automation. And in downstream of General Automation, some of bigger industries started to show positive growth, not just Lithiums and Logistics or 3C, Automotive.

Some of those have got a better first half, but there are some others who had pretty poor first half year performance, but like process industry, semiconductors, etcetera, they started to recover somehow in quarter three, which also contributed to our third quarter order. Another thing about the General Automation in quarter three is that we had got some organizational chart adjustments. We established a global business group. And that marks how our business is now extended from the Chinese market to the whole world. And basically, there are two ways of doing so.

One is to partner up with other partners while our downstream customers bring their products overseas with the participation of our services and our products. Another is industry specific globalization, securing accounts in some sectors. And those two together formed our global transformation in general automation business of our group. That’s what we have done in quarter three, a pretty major change. As I said, 13,100,000,000.0 for the first three quarters with a 20% growth and quarter three specifically, 4,300,000,000.0, 25% growth.

With general purpose servo, the revenue was JPY 5,300,000,000.0, PLC and HMI, JPY 1,300,000,000.0 yen Industrial Robot, 900,000,000 yen AC Drive, 4,100,000,000.0. Next, let’s say, NEV, New Energy Vehicles. The first three quarters total revenue was 14,400,000,000.0 yen a 39% growth year on year. Quarter three specifically, CNY 5,300,000,000.0, 22% growth. The market share demonstrated a steady growth and a more balanced customer portfolio.

We now have more customers surpassing the value threshold of CNY 1,000,000,000. And we’ve got more than 20 new overseas project denominations, nearly 60 new project nominations in these three quarters, which are the main driving force of our NEV business in the past three quarters. And our Generation six product platform, V Research proceeding as scheduled, about to enter a sample development stage, including our inverter, motor and powertrains, etcetera. The fourth point is that with our smart chassis business, our rapidly growing, including from Innovus Automotive. We established that smart chassis intelligent chassis business group was established, a business department, and their suspension products entered a B cycle stage, got nominated by customer.

And off volume orders from European customers drive overseas revenue growth exceeding 50 year on year. Next, let’s see Intelligent Elevator. First three quarters remain a flat 3,600,000,000.0 yen Basically, aren’t any new strategies there just to implement the existing one, which is to serve well with our account domestically. We have two hard challenges, and we successfully started to overcome those. And those two elevator customers started working with us after all those years of communication and long term negotiation, finally.

And another is that overseas market business with intelligent elevators. We are having some steady growth in Europe, Southeast Asia, India. Another is aftermarket business, we had steady growth. Okay. Now I would like to talk two things related to our future business.

One is intelligent robots. As I said, we’re about to have another round of organizational chart adjustments, and I’ve just talked to the future head of this new department. Our intelligent robots would include the combination of industrial robots, computer vision and AI. So we believe naming it intelligent robots would be more appropriate, and we are to establish that organization. At the end of the Industrial Expo, we have announced our core components for the intelligent humanoid robots, including the frameless motor, high power density drive and the high density sensor and the planetary screw rod product.

And also, we launched several modules, including the linear actuator, the planetary rotary actuator as well as the seven axis bionic arm product. The announcing of those products are exactly because we’ve been communicating with both domestic and overseas customers in the process of R and D of those products. And now that they have been announced, we are continuing our communication in order to put those into their application as soon as possible. And we, in advance, by announcing those products, are leveraging our industrial robots and components advantages. Our legacy, we have that reliability and a mass scale manufacturing capability advantages.

We can really meet the demand of humanoid. And right now, it is mostly encountered as problems in the whole industry that they have very small scale and very high temperature rises when those components and modules are in operation. So we launched into the market smaller form factor with low temperature rise products with more stable manufacturability that we have and make those more flexible, smaller in size and safer to use. And based upon our understanding of those components products as well as industrial scenarios, we also developed some embodied solutions for industrial scenarios. And that is another strategy we have with humanoid or intelligent robot, as we named it.

And another thing is that we announced some more software side thing at the Industrial Expo by the September. If you are interested, you can log in to our WeChat public account to watch some of the videos with more introductions there. And let me here reemphasize a few things. In the future, software plus digital platform plus automation software, it’s definitely going to be the definition of those two. Our IF is an intelligent software, and we launched some new functions, including for installations, etcetera, those industrial softwares.

And for all those years, we’ve been accumulating on our digital platform, InnoCurobe, and we are going to really align those platforms and connect them together in order to really meet the demand of our downstream customers. And apart from these, we also have two other very fundamental things we can leverage. One is AI. We announced our IFG, Innovance Factory Genius, an AI brain for industrial scenarios. You could watch some video, search for it and get to know more.

Another is our wireless revolution. We believe the wires and harnesses in industrial scenarios is also a pain point because they’re troublesome and hard to maintain. Wireless revolution is another direction as well. So we launched InnoAir wireless revolution. And these are some of the things we had done in terms of smart manufacturing, industrial automation and industrial robots.

Okay. So that was the first three quarter performance review of the Innovus. Thank you all very much.

Song Zheng He, Board Director/Secretary, Innovance: Without further ado, we’re going to kick off the Q and A session. This is the English line. Or if you’re joining by the app or the website, you can also raise hand or you can type in a question in the chat box. Thank you. If you want to ask question, joining by phone, you could press star one Now give the floor to the first investor.

Please identify yourself first. Thank you. Hello, everyone. I am Zhao Zhu Yong in charge of the Mechanics and I have several parts. The first one is about the industrial automation business.

As you have mentioned at PowerPoint that for most of the downstream industries in recent years, we’ve been seeing a very good positive growth for the order placement. Does that reflect the overall better off situation for the manufacturing industry as a whole in China? I am curious to know that how do you think about the future trend of the manufacturing in terms of the overall demand? Second question is that from a third party statistics, we can see that the market share of Innovance in China is increasing continuously. We’d like to understand that for the downstream industries, which industries are enjoying the most rapid growth of the market share?

Are you taking shares from overseas companies or you’re actually taking the shares from Chinese companies in China? And next question is about the overseas business of general automation. You have mentioned that this is going to be your major focus for the future, like the going global business of manufacturing industry in China brings a lot of opportunities to you. I’d like to

Unnamed Executive, Management Team Member, Innovance: know that

Song Zheng He, Board Director/Secretary, Innovance: in terms of the investments, in terms of personnel investment or resources investment in overseas, what it’s like? And what are the core strategies that you are implementing at the same time? And my third question is that, as you have mentioned that for the HUMIRA robot in the Industrial Expo, you’ve been actually demonstrating a lot of new products that you had. Also in the past, in terms of general automation especially industrial automation you had a very good strategy from core components to a total solution provider. So we would like to know for humanoid robot business what is your future positioning?

Are you going to be the provider of a core component or the whole robot itself? And which industries that you might be targeting or you’re just doing in a general provision of those products? These are my three questions. Thank you. All right.

Thank you very much, Chu Yong, for the wonderful three questions. The first one is that talking about downstream industries of industrial automation. Actually, second quarter of business, I’ve already said that, actually in the downstream industries, the overall demands were impacted negatively by the tariff and the trade war. So we had a weak performance of the demand in Q2. So overall speaking, we do not have a lot of order placement increase.

But in Q3, as I have already alluded that in most of the industries, for instance, for the company industries that we are managing on the group 45, only four industries that had negative growth. The rest of 30 plus industries and sectors experienced the positive growth. So from that perspective, we do see a recovery and rebound of some of the industries. As I have already said that some of the industries negatively grew in the first half of the year, but actually recovered to a positive growth track and with a very good and sound growth rate. So for process automation, for instance, papermaking, chemistry and chemical industry and refinery, we had a positive growth.

So for textile and silicon, of course, silicon had a lot of decrease in the past and so does the textile, but they also enjoy positive growth with a fair enough growth rate in Q3 again. So for these four I mentioned industries, they had a very good recovery. So I think that the attributes are that first of all our organic growth and also recovery of the downstream industries. If you ask me to give you an outlook for the future to Q4 and 2026, I think that this particular growth momentum of the top three quarters will prevail. But whether it is going to be as high as that of the Q3, that is still a question, but we are going to continue the momentum of the top three quarters as a whole.

Second question about the market share improvement, where we’re getting the additional shares. Actually, to our statistics, right, it’s not the end of the year, so we don’t have a full year data. But for some of the industries, could share with you some colors. First is that about the automotive equipments. So we had a very low market share in the past like from the component manufacturing lines to the whole lines, we had a very low market share in the past.

But now we do have designated production line for the automotive components and we have solution center. We started the business from the PLC as the major product and developed all the products from control all the way till the general ones. So we had a very good growth, but most of the market shares were actually from the overseas companies. But for semiconductor business, we had a very good growth in Q3 even if we had a headwind in the top two quarters in the first half of the year. So as you all know that for this particular kind of very good integrated manufacturing process is actually accelerating the progress and also in the front segments especially.

So for front segments had been a very good advantage for us in the recent quarters. And we used to focus a lot on the rare components or segments. But now we’re taking share from overseas companies as well. For the lithium battery industry, in the two years in the past, we had a decrease of the business, but we had a very good recovery starting from last year until as of now. This brings with us a very good positive growth in the third quarter.

And for logistics equipment, this is going to be another highlight of this year. I think in most of the cases, we’re taking market share from overseas companies. There is a long tail effects. But of course, one thing I have to say is that we are focusing on different regional markets that are having a very good growth. On the overall basis, the regional market about like overall speaking 30% of the growth.

So different the drug web locations had on average about 30% of the growth. And most of them enjoy from a long tail effects, but it’s very difficult to give you statistics about it as a whole. So for Innovence, at the end of the day, I think that most of the market shares additionally were taken from the overseas companies, and we’ve been finding some solutions and, for instance, to increase our ability to provide solutions so that we are able to overcome some of the difficulties and overcome the dominancy of some areas by overseas companies. Second point is about the overseas market expansion. When we used to dispatch a lot of people to overseas, but now we do have locally hired staff of about 700 working in local other overseas countries, which is a great number already.

So we’ve been investing a lot in recruiting staff from local in overseas. And next one is about the R and D expenditures. Actually, as you all know that especially for Europe and North America as a market, which they enjoy a lot of high bar for the business specs I mean the product specs and the quality. So in order to support expansion to these markets, we have been emphasizing more on the R and D expenses and also making research and development of those products that are having the compliance with the European or American standards.

Unnamed Executive, Management Team Member, Innovance: So a

Song Zheng He, Board Director/Secretary, Innovance: lot of R and D expenditures on this part. Another one is about the factories and plants, not only for automotive business. Automotive business plant is going to be operational in Thailand and Hungary.

Unnamed Executive, Management Team Member, Innovance: And for

Song Zheng He, Board Director/Secretary, Innovance: industrial automation, we’ve been also having local plants working in Hungary and North America. And at the same time, from the strategy standpoint, I always stated in the past that whether or not, Dinovanse is going to be truly globalized, is dependent on the market share or I mean the share of the business contribution from overseas and the number of key accounts from overseas that we had against the total. So investments and mergers and acquisitions, still we have a lot of rooms to further improve. And we are actually quite actively refining the subjects to invest or making M and A. So for R and D, we are making the product that standardized as the quality requirements of North America and Europe, and we have been expanding the production basis in overseas as well.

So in terms of investment and M and A opportunities, we’re still trying to find the good quality subject. So I believe that definitely overseas market is going to become a very important strategic focus for us for our regional strategy. Human and robot, the third question. You all know about us that in 2016 or before 2016, we were very difficult in doing the robot business and we are selling flowers, but now we are selling breads made out of the flowers. So whether we want to be a sole kind of a provider of components or the robot, so we have several steps.

First is that, of course, we have to build the competitive edges among the core components and parts of robots. If we can’t do this, I think that we’re going to say sorry to the robot and human robot industry in China. So we have to be successful and leverage our channel advantage and supply chain advantage. At the same time, we hope that we’re going to be more innovative in exploring the businesses. Second is the whole robot itself, but this is pretty much based on industrial robot.

But for the pan like a human robot as a form factor, this is not something that we are good at now. But if you’re talking about industrial robot or actually industrial solution, we do not call them human robot, but we call them industrial robot and intelligent robot. We’re going to make, for instance, the intelligent dual arm with a lot of degree of freedom in our product as solution. Probably it’s different from a general kind of a human robot. You could call it designated robot, but these are actually developed, designated to certain industrial scenarios.

And for the general human robot, more often we are going to empower the Chinese companies to manufacture or some overseas company to manufacture for us. All right, pretty much the answers. Thank you, Zhu Yong. Right, thank you. In the past, in the general automation, you had a very good successful story.

And I truly believe that in globalization and in the human robot businesses, you are going to become a continuous leader and wish a better future. Thank you. Thank you for this wish. Now I would like to give the floor to the next investor. And please, first of all, identify yourself.

Thank you. Mr. Song, this is Song Dong Hwang from Dong Hwang Securities. I have several questions. The first one is that I would like to know that for human eye robot business, probably you had a products in September.

What is the strategy? I think that this particular strategy is pretty much matching your advantages. So I’d like to know that what were the feedbacks from the customers towards your strategies and what are those targeted customers? How do you think about the definition of targeted customers for this business? And when are we going to have a very visible achievement and good outcome?

Second question is that I heard that you are going to have a business unit for intelligent robot. What is the overall planning in terms of staffing and something else? Could you actually expand on that topic? This is my first question, which is about the industrial robots. As you mentioned, another strategic business is energy management and for intelligent energy management or digital energy management.

You were doing this already in the past, but probably did not attach great importance in the past, but now you are giving more resources to digital energy management. I would like to understand the overall plan in the future. For you or manufacturing PCS for ESS and for C and I energy storage or some utility energy storage, you’ve been doing ODM business. But overall speaking, I think that the overall market was not responding quite well and giving you positive feedbacks, probably related to less investment on this in the past. So I would like to understand that whether you are having some strategic changes or any changes on your investment portfolio.

Unnamed Executive, Management Team Member, Innovance: And my third question would be of Bienavessia Automotive. In the third quarter, it performed relatively weaker. But as you talked about its future targets, it’s still quite ambitious. So could you tell us about your outlook of that automotive parts, the NEV business’s revenue growth forecast? And also how overseas part for that business is currently standing at?

And tell us more about it, please. Okay. Thank you, Mr. Teng. Well, your first question, humanoid and intelligent robots.

Well, after we announced those parts and components and quite a lot of potential customers came to us, and we can say there are some orders already placed. A customer acquired and procured our parts and components. And yet still, for most of the potential customers, we’re still now talking, just talking and communicating. And most of these customers are like human manufacturers and brands, both domestically and overseas.

Song Zheng He, Board Director/Secretary, Innovance: And

Unnamed Executive, Management Team Member, Innovance: more tangible in terms of placing orders or mass production, well, not many. As I said, only one order been placed and others are still negotiating. But the overall feedback has been very positive because parts and components from Innovus announced at the Industrial Expo, be it technology wise or service and performance and product price and quality control, etcetera, all those aspects, people just place trust in

Song Zheng He, Board Director/Secretary, Innovance: us.

Unnamed Executive, Management Team Member, Innovance: And by adjusting our organizational chart, we would combine somewhat of the industry robots, computer visions and AIs, etcetera, together. In terms of the resources budget and headcount budget for it, we’re still now in the process of planning for that. We’ve already gone through a prescreening of the managerial staff. So the management of that Intelligent Robots department will be determined soon and more detailed plans of the resources as well as the headcounts, talent teams would be decided by that management team once the management team is fully confirmed and announced. So I’m not at liberty to talk more about it for now.

But there’s one thing I can say. Looking into the global world, intelligent manufacturing plus digitalization is definitely what we can have in the future. You can see that from Siemens products and the solutions as well. And for an EV, smart chassis would really be a big part in the future. And thirdly, humanoid development will bring a lot of new opportunities, which are quite large, huge scale.

And now that we have been planning ourselves and preparing ourselves for all those three, we can say that this is probably one of our most important historical product strategy. We’ve already had a dual kings, as you see on my first slide. And now intelligent robots will become our potential third king. It would be a testament to test and to show, testify whether we could have that flexibility and make strategical shifts when needed, we definitely would put our group’s effort into it. And the reason we want to change the organizational chart a bit is because we want to invite someone who understands that new technology, who’s able to do strategical things around it.

And the management team are yet to be announced. I cannot disclose more at this moment. Second thing about digital energy management or energy storage, well, yes, if we seek our energy sector only about energy storage, then we would say energy storage overseas is still pretty good, but not so overseas not so domestically. Domestically, the price war, the rat race is just too much. Several listed company entered the field of integration of energy storage and then find it is too cheap, and they just simply withdraw.

And the reason we continue to talk about the digital energy management, so you can actually find that I never mentioned energy storage anymore. I only say digital energy management. Energy storage would only be a market, a product within that system. To change that, it means we’re not going to be focusing on energy storage solely. Well, our product still has the advantage, including our understanding in electrics, electronics and the transmission technology communications, etcetera.

We still have that advantage, that is for sure. And our overseas energy storage business are still going to further develop either through our own channels or through dealers. But domestically, we would like to focus a bit more on a bigger picture, which is the smart energy management, digital energy management based upon the dual carbon strategy, based upon the energy structure shift as well as digitalization’s empowerment to those scenarios. We want to achieve some new things and build new business models, new business and new products in those regard, which is why also we are now making adjustments to that. Haven’t finished yet.

We’ve selected a lead person and about to formulate a team. Like I said in the beginning this afternoon, we now have several big business departments: industrial automation, global industrial automation BG, Global Elevator BG and Innovance Automotive. And the two newly added to be added ones, one is Intelligent Robots, another is Digital Energy Management. So these two upcoming new business departments are now being planned and currently under adjustments. And later on, once they are officially formulated, we can have further discussions to say whether they are in a good shape or not.

And then thirdly, with our MEV business, even though the profit and revenue both haven’t grown a lot in the third quarter, but we see from January to September, overall, still pretty good. We say there’s that anti involution campaign going on from the central government. But as I talked to some insiders in the automotive industry, they say it’s the second half. And the innovation the evolution is still going on, sometimes even fiercer. And we probably have to wait till the end of it.

And for us, we simply just keep our market position. In the third quarter, we do see some of our customers haven’t sold many of their cars and caused some effect to our orders as well. But to achieve the overall whole year target, it’s not going to be problematic. A 30% revenue growth year on year, that is our annual target, which is not problematic. And secondly, with our overseas business ratio among our NAV business, you, of course, would like to pay attention to the future development space for Innovance Automotive.

Overseas is quite important because the gross margin there or the rational behavior of customers there would also be better than that of the customers here. So overseas are quite important to our Innovance Automotive. From January to September, overall growth there had been 50% from our overseas revenue. And of course, we do have multiple tiers of customers, not just selling our power supplies, but also the power drives and the powertrain assemblies. The structure portfolio is getting more completed.

And another future growth point for Innovus Automotive would be switching towards Intelligent Chassis. Now we’ve already got some suspension nomination projects and wire controlling will come soon, probably in the future. And in the entire automotive industry, Innovus Automotive, will definitely have a lot of advantages there. Our motor, our control, our drive actuators with smart suspension on those premium vehicles. Those suspensions are always requires very rapid responses from motors and actuators, probably faster than the other actuators you have ever seen on vehicles.

And they must operate in a very synchronized way. So intelligent chassis, including wire controlled chassis and the suspension would become a big advantage of Innovus Automotive. The third point to say about that is that we continue to optimize our key account structure for Innovus Automotive despite the involution rat race environment. Now with our passenger vehicles, new energy brands accounted for 50% and the traditional OEM accounted for 40% of our business and overseas around eight to 9%. Of course, we hope to raise our overseas business ratio to 20% to 30%.

That is our target. Thank you. Thank you, Mr. Song for your questions. Thank you, Mr.

Song for answering those. I do agree with Innovance and Intelligent Robots, you have a lot of space. And you mentioned they are making some adjustments with the digital energy management even though we could only see some energy storage businesses. And probably you’re going to have something new to bring to us, and I do hope so. And I wish, in events, have more business space to further tap into that in the future.

Thank you. Thank you, miss Dong. Next, 5006, Please state your name and the institution name before asking your question, please. Hello, Mr. Song.

I am from Main Securities. I am Ming Shen. I have two questions for you. One is a follow-up question with Innovance Automotive because this quarter, in quarter three, I mean, really, it slowed down. So you mentioned it’s made both basically because of one sluggish customer.

And I want to ask you, do you see the possibility of them continue doing that? I mean, looking at your current nominations and orders, it seems the trend is still uncertain. The whole market really do have a strong demand for those products. And second question, you said overseas business ratio, you wish to continue to increase. But next year, in terms of policy and the subsidies, there’s going to be the exiting or to some degrees of that in the domestic market.

Do you foresee some slowing down for the whole automotive industry and cause some problems to your Innovance Automotive business growth next year? Well, is that first, the reason for our third quarter business is due to some key accounts slowing down their pace with our orders. And the next part, we would like to talk about the Automotive autonomous management. Innovance Automotive’s largest competitor would be the OEMs trying to make those products on their own instead of buying from us. That is an unavoidable topic.

However, we do have a very clear notion. Even if they do that, they wouldn’t do it 100%. I mean, in most cases, at least 50% to 70% of those portfolio are still going to be handed into a third party enterprise, a third party supplier. And as long as we can capture 50% to 70% of market share, that would be already big enough chunk for us. That’s how big the market is.

And secondly, even if the OEMs try to make those products on their own, we offer customizations of the stators, the rotors and other process modules, etcetera. Now some OEMs said they do the powertrain DIY on their own, but actually the solution were provided by us. Well, we cannot stop OEMs to make their own systems, powertrain systems, but we can try our best to let them use our products. Yes, as I said, that’s one of our largest competitor, but we do have ways to respond to that.

Song Zheng He, Board Director/Secretary, Innovance: After so many years of development on the overall basis for Innovance Automotive, we’ve been dealing this quite well and we’ve been seeing a very steady progress of our growth rate. The decrease happening in Q3 was not attributable to the self and in house manufacturing of our customers, but because of the poor sales. So we had a fluctuation of our order placement. Second point is that in the longer term, the exit of the subsidy policy,

Unnamed Executive, Management Team Member, Innovance: definitely asked

Song Zheng He, Board Director/Secretary, Innovance: the customers to spend more money and that impacted to a certain degree on the demand. But taking a look at the rising of Chinese new energy vehicle except for electrification, another very important factor to this and driver to this is the level of intelligence. People feel quite convenient and quite intelligent of driving their vehicles. So you like to say that whether or not it’s the electric vehicles from China that rival that of the overseas or rather I believe it should be electrification plus level of intelligence of Chinese EVs, which are better than that of the overseas. So I think that definitely that impacted the overall demand of the buyers.

But from a longer standpoint, at the end of the day, we are talking about the intelligent vehicles that had the technology know how, which is going to be an inevitable trend. You could see that for industrial combustion internal combustion engine vehicles, they’re having less and less sales. And the penetration of electric vehicles are increasing at the same time. I’m not concerned about this too much. So of course, the whole industry is actually slowing down.

Of course, for industry, say if you’re talking about ten or seven to eight years of quick development, naturally, it is going to be cooled down, which is quite natural to have. But from a longer standpoint, the intelligent vehicles that are first of all electrified will definitely be the priority and prioritized choice of the mass public. So if we’re talking about that, the future is quite promising for the new energy vehicle. Right. Thank you.

I have a second question myself, which is related to the profit margin. In recent years, we know that the new energy vehicle is actually growing quite well and that actually helped stress the kind of gross margin as a whole. But actually in the top three quarters, you had a very low expense rate and very good control on the overall cost. So my question is that looking down the road for about two, three years, as you might mention, the organizational restructuring as for the productivity and order placements and also cost control, whether that will add more benefits. And from a net profit standpoint, in the top three quarters of this year, it was quite close to that of the whole year of last year.

So in the next two to three years, do you think that the net margin could be up to maintain the level of about 12% or even higher? Right. Let’s talk about the very first question or first part of this question. Comprehensively, it’s difficult for us to have an overview of the prediction because the Innovance Automotive business had a big fairly big impact on our overall gross margin, but you cannot limit the expansion of the business of Innovus Automotive. So we should divide this into several business units.

The most important part is the absolute revenue and absolute profit growth. Sometimes we might sacrifice the gross margin, but if you’re talking about the absolute contribution to the group level revenue, this is good. Just now we said that for industrial automation, this is still a very good quality business with a very stable GP margin. It is still competitive to a certain extent and overall price has been driven down. But because of restructuring of our products Innovus, we are selling more products with higher margin.

And second point is that we are improving the efficiency of the supplying side and reducing the cost and enhance the efficiency. So on the overall basis for Industrial Automation business, we had a very good maintaining of the profit margin. For expense rate, this is a very important focus for our cost control measures. Of course, just now we said that we have certain strategic businesses. We had a restructuring of the employee structure and the expense structure, but we have to invest more on the strategic projects.

So for instance, we need to reduce the cost and enhance the efficiency or reduce expenses, if you like, for the traditional business. So that overall basis, we are able to control the expense rate at a fairly good level. So this is an important indicator for us. For GP margin, because of impact of business of Innovus Automotive, this is only regarded as a result, right? I don’t think that it’s viable for us to stop the development of automotive business.

But actually, we have another target for net profit margin for the whole group. That would be a little bit volatile because we had a lot of strategic investment projects. But overall speaking, we hope that from a strategy standpoint, we would like to actually improve the GP I mean, net profit margin from 12% to about 13% or 14% in some days, which is our target in the future.

Unnamed Executive, Management Team Member, Innovance: Right. Thank you very much, Mr. Song. I don’t

Song Zheng He, Board Director/Secretary, Innovance: have any further question. I wish you a better performance in the next quarter. Right. Now we are going to give the floor to the next investor. First of all, please identify yourself before asking questions.

This is Du Chang from Goldman Sachs. I have two questions. The first one is that for the general automation business, except that you had contribution from your overseas projects in China for some manufacturing companies. In China, they’re trying to be globalized. So for the international order placed, probably some of them are from those Chinese companies of going global.

So from a product spec standpoint or from other methods, were you able to tell the story that how much of the sales revenue contribution is from overseas? The reason for me to ask this question is that would you like to actually maintain the growth rate of like 20% growth in the first half of the year or top three quarters? How many of them are actually the replacements from overseas in China? Or some of them are actually organic? This would be my first question.

And second question is on the area of intelligent robots. SoftBank actually acquired ABB Robotics business. I would like to ask your comment on this acquisition and to what extent we regard this as an opportunity to you. Right. First answer on general automation.

From a business standpoint of the company, actually difficult for us to have statistics of every segment, say, overseas sales, right, in Europe, you might be knowledgeable that for those European key accounts and projects, they procure from Europe locally and from China at the same time. We found that there might be super projects initiated in overseas in Europe and Chinese companies are taking that bidding. This happens quite frequently. So I don’t think it’s necessary for us to have a very clear calculation. As for our statistics, this is going to be a very difficult part to be incorporating.

At the current stage for the industrial automation, I think that we need to explore in China and also we have to board the vessel to go overseas, which is the most efficient way, which can afford 50 percent of the overseas projects. So if we go global as a group, we are talking about, first of all, OEM equipments that went abroad. For instance, if we want to do business with an end customer in overseas, and that is related to the factor solution and the equipment provider selection. So while we are doing this business, we have to have multiple teams working together. The overseas teams need to actually manage the overseas customers well in trying to establish a very good relationship.

Of course, for some overseas customers, they are not going to have Innovance as the only vendor. We might have Siemens working side by side. So actually, we have to compete with Siemens, for instance, in order to get more share from this particular company. And of course, this need a multi team collaboration and coordination. But it’s difficult for us to categorize that business.

So in order to streamline the management, got regard everything about this. It will be a difficult thing for us to do statistics. I don’t think that details matter here. But for the group going global, be it is the business done in overseas or in China as long as we have a positive growth for the companies from China going global, we are in a much better off situation. We had over 50% of the growth rate is higher than at the average.

So second point will be on intelligent robot. SoftBank acquired the business of the global industrial robot business from ABB. We’ve been following this up for many times. Of course, to me, I think that there is still opportunities for us to catch. On a country.

Why ABB such an international giant would sell this business of industrial robots and even promoting one. So if we’re thinking about this answer ourselves, at least that in China, definitely we are going to be a very important force in the international industry. So I think that definitely in the future, it will be China dominating the whole market. At the current stage, most of the components are still from overseas. But when we are having penetration, which is higher and also other companies from China that are having higher market share with a more mature technologies and know hows, I believe that this type of penetration is so important to the automotive market.

When we are deepening our penetration rate, I think that will be pretty good. So from this standpoint, I think that for some like big industries, six DOF in our robot is encouraged by the government and this is going to be our opportunity in the future. Of course, acquisition of SoftBank and ABB’s robot business, you have to have artificial intelligence, right, on top of the robot of ABB. What we call intelligent robot because we have the vision and also we’re to have a lot of other technologies on top. So form factor does not matter.

The overall technology know how is very important. So form factor does not matter the most. I think that, yes, we have opportunities aligned ahead of us. Right. Thank you very much, Mr.

Song. I really agree with this and truly recognize your future development as well. Now I’ll actually give the question to the next one, and please identify yourself first. Mr. Sung, this is Dong Hao Jie from Haitong Securities.

I have several questions. First one is about the industrial automation. Just now you mentioned that we had a very good recovery and rebound for the business of this one in Q3. I’d to understand that what is the profit margin of automation? And how do you think about the competitiveness on the pricing?

What is the level of the price competition? And what about the inventory level of your suppliers? Second question is that how do you think about the positioning and deployment in screw and some of the hardwares of the brushless motor, you were positioning on that, but whether or not you had certain positioning and focus on the software. Just now we talked about the automate industrial automated robots working for industrial scenario that is going to be working. So from a scenario standpoint, do you have any specific target?

Unnamed Executive, Management Team Member, Innovance: And our data core profit part is not at I’m not at liberty to disclose it. But overall, from January to September, I can say our operational efficiency is on the rise. We internally we have a caliber called a core profit rate. It’s increasing as well. And in terms of price, price is still having somewhat of a rat race, fierce competition, but slightly better than last year.

Every year, there’s supposed to be a price drop, a little bit higher than that of the past year. But overall, to our product structural adjustments, for example, high margin products like PLC, we have pretty nice rapid growth. And secondly, with our cost down on supply chain management and expense management, our overall gross margin have kept up pretty well. It’s just the price went down due to the competitions. And thirdly, in terms of the downstream inventory, on a customer end, our clients don’t have much inventory.

It’s just the mostly just the inventory of the dealers. But it’s not a great time for dealers to build inventory at the moment right now. They’re still just building normal inventory naturally. And secondly, in terms of the intelligent robots, hardware, we’re covering all those preparations. And for in terms of the models, we are not good at building those big models where we just apply those, especially those open source large language models, we use those.

But on the software side, we have two things we have to do well. One is computer vision. Well, it involves something related to the large models, but we can combine our robot team with computer vision team so that on the controlling end, there might be some chemical reactions between the two teams. We also announced an asset interface camera. If you can watch that video on our public WeChat account, combining software and hardware together is pretty strong.

And thirdly, motion control. And for the humanoid with the training of the large language models, it’s hard to make the final touch of the robots really fine, and you still need some motion control bit. And how you combine that and engage it into the large language model, that is something we are good at, at the end of this. So on the software side, apart from using the large models as well as our motion control system, we need to integrate those really well together with the previously mentioned computer vision with motion control or large models. So basically, just the hardware, we are investing in the software part as well.

Okay. Any other questions? Well, thank you, mister Song. I don’t have other questions. And I hope Minervin will have greater performance afterwards.

Thank you. Next 1, 8277. Please state your name and institution name before asking your question, please. Hi, I am Jiang Peng from Chongqing. And I do have a few questions regarding general industrial automation.

Apart from PLCs and others, we do see that there have been some quite doubling revenues. Could you help us break it down to tell us what exactly are the ones having that strong momentum? And how is it going to develop further in the future? And that partnership of going overseas, we know it’s growing really fast, but how do you actually have that encountered in your whole picture? How much is the overseas ratio for that?

And for Intelligent Chassis, you have a lot of differentiated markets in the niche. And how do you see the different realities of those ones in terms of profitability and operational difficulties? Well, first, the other products category in general automation, well, from pneumatics, from 3C to precision machinery to high efficiency motor apart from servo motors, well, all of them are growing pretty well. Drives, the absolute value is not very high, just couples of millions with a 60% to 70% growth. CNC machinery and precision machinery are growing pretty fast as well this year, especially the precision machineries in the CNCs.

Those precision machineries in CNC normally are dominated by Japanese brands or brands from Taiwan. And this year, we’ve started to enter that market and with pretty fast growth. Oh, also sensors. Our sensors well, not including the encoders, just the sensors. Well, you do see they are of very small scale at the moment right now.

They’re not contributing much to our overall business. We’re just cultivating those business of ourselves. And secondly, in terms of that partnership driven overseas expansion, well, in between January to September this year, the contribution would be around JPY 900,000,000 to 1,000,000,000 yen and accounted for 50% to 60% of overseas business. With NEV Intelligent Chassis, you’re asking about its future competition landscape, how is it going to be? Well, I believe in the automotive industry, overall competition are always fierce.

Even if it is highly developed, lots of R and D developments devoted into it, but when standing in front of the key accounts yet still you feel quite much in pain or effortless. And that is a dilemma in the automotive industry. But we innovate based upon our understanding of all those legacy technologies of ours, electronics, electrics, wire controls, we are going to do well. But how much higher gross margin that’s going to be for our current EIC systems? Well, it’s hard to say.

But definitely, this is well, intelligent chassis will definitely be something we are more with advantages on rather than our competitors. Because for those electric drives and the motors and the controls, that’s what we are really good at with Innovence Automotive. The competition, even if there’s going to be well, yes, still our competency is quite good. And in terms of profitability differentiator, well, it’s really hard to say. It’s still too early.

Thank you. Thank you, Mr. Zhang. Well, thank you, Mr. Song.

I don’t have follow-up questions on that. Thank you. Now investor, with the number 7664, please state your name and institution name first. Hello? Hello?

Can you hear me? Yes, please. I am Chen Ya Song from HSBC. I have two questions. One is that Mr.

Song, you mentioned general automation business in third quarter overall gross margin is flat with last year if we do not consider the NEV gross margin lowering. Just asking for your confirmation on that. And secondly, second question for overseas. I remember a few years back, you said overseas business is going to be 20% of the overall revenue. So I would like to ask how do you see that target now?

Because recently we do see some FA or overall they are having somewhat of a recovery as well. So do you think now or by which time we can really get to see more large scale expansion in terms of the volume for your overseas business? Well, thank you for your questions. First question, automation Q3 gross margin. Overall, it performed pretty well, slight increase compared to last year quarter three, not due to the price got increased, which is not true.

The prices are still under fierce competition. But as I said, we have high gross margin products, structure got improved. And also the expense control, cost control on the supply side as well, which contributed to the improvement of gross margin. And as to your second question, overseas business. Well, yes, indeed, a few years back, we announced that we have a future target to have 20 to 30% overseas business.

And that is going to be was going to be mainly driven by industrial automation. The target remained still now. But indeed, we encountered some difficulties quite a lot, actually. The first challenge would be that Europe and the North America, they have that awareness for Chinese brands, which needs some more time to be changed. Lastly, Europe and The United States markets, requirement for products, especially if it features functional safety, they require differently and they take some more time to develop.

Thirdly, the people, the talents in overseas markets when compared to Chinese engineers, their spirit of wolf or their responsiveness to customers well or let’s say, their understanding of those achieving high challenging targets, they’re simply not the same with how Chinese engineers would work. I mean, the work style is quite different, and it needs time to be solved. And right now, we are still in a process of aligning between domestic and overseas. But if we have more domestic engineers started working overseas and drive the whole platform higher, we still need some localized talent there from the local countries. And to establish that culture of the business and continue to optimize as well as optimize our stimulative measures to really stimulate our overseas talents to accept higher challenges and overcome difficulties.

And our brand strategy, well, through some acquisitions and expose, we’re going to be in those. Well, overseas customers, they really value exposed a lot. It’s a very big and important window to increase brand awareness in the overseas market. Now that we have realized this, we are going to increase the frequency of how we participate in those overseas exhibitions. And it is not just simply selling products.

It requires time to be devoted into it to accumulate. Well, we cannot change our target for overseas business, but we do now realize those challenges, and we’ll solve those address those gradually. I have another follow-up question. For your overseas business now in different regions, which areas are faster for your development, developer countries or developing countries? Well, for the automotive industry, definitely developed areas like Europe.

But with general automation, if we look at orders, it’s the emerging countries having faster response while developed countries are slower because some products need some time to be developed. Okay. Now I understand. I don’t have other questions. Thank you very much and wish you a great performance in the future.

Song Zheng He, Board Director/Secretary, Innovance: Now I’d like to give the floor to the next investor. And please identify yourself before. Thank you. Mr. Song, this is from Citibank.

I have two quick questions. The first one is that before the start of the conference, you mentioned that for general automation, you’ve been now moving to the front segment from the rear segment in the semiconductor production line. So you’re talking about the front segments, what kind of products that you were offering? And for semiconductor business, what is the total contribution to the total revenue of general automation as a whole? Right.

So for the front segments, we’ve been talking about CMP and photo etching, for instance. And for products, these are all drivers and some of the controllers, so total solution. In terms of the contribution percentage against the total revenue of semiconductor sector, This might not be that high. Let me have a look. Approximately from January to September from order standpoint, it’s about 200,000,000 or so accounting for about 1% or 2%.

Because you know that we used to do a lot of products for the rare segments in the semiconductor industry, but for the front segment, it’s not that easy to enter and there are a lot of equipments related to this. And we do not have domestic made equipments, but now it’s becoming more frequently China made. So percentage wise, is quite small. Right. My second question is that you have mentioned that the cost control is one of the major focus of your strategy.

So actually now in the top three quarters, the three expenses accounted for about 16% of the total revenue. So it’s been reducing. But next year, if you had about like 10% to 30% of the revenue growth next year. And against that, do you have a target of the percentage of expenses against the total revenue? So I think that it’s not the lower, the better, especially R and D expenses.

At the current stage, for the R and D expenses, the percentage has been increasing in recent years. Overall growth rate of the R and D expenses is higher than of the revenue. It’s just that the sales and administrative related expenses are actually slowing down because of the platform operation we had lowered. But it’s not the lower the better. I think that the expenses ratio could be around 16 to 17% and that will be pretty good.

We can’t make it too low. We have a logic there. For R and D expenses, we have to make sure that it is heavily invested because this is a source for our growth in two years. And for sales expenses, for salesperson or doing business, it takes one or one point five years to work upon a new customer, right? So it is the source for our future growth in the next one or one point five years.

So if you reduce the expense, of course, at that local period, it might be beneficial in a short period of time. But in the next one or two years of time or even longer, is not going to be beneficial at all. So we can’t reduce the overall expense rate too low. For the general automation industry, we have a lot of different products and a lot of technology on how we have to invest. And in terms of customer, right, we are talking about customization and the industrial customization based on different needs and processes.

We need to have a lot of investments, right? We can’t make one size fits all product for all the requirements of the customers and enjoy three to five years of dividend. We don’t do business like this. What we do is that we have to have continuous investment every year in order to really protect your business. For elements, we have platform products and some of the industrial customization, which is still our advantage and we are enlarging the gap versus our second place.

And we know we have a lot of industrial scenarios and solutions. Right. So thank you, Mr. Song. I have a final quick question about the GP margin.

For General Automation, just now you said that it’s flat versus that of last year. For Elevator business, whether it’s flat for GP margin, actually, was it due to because of more sales of new electric vehicle business and for electric motor and electric driver sales, the GIGI margin has been growing down. Was that the major reason? Okay. So the answer is that if you’re taking a look at the third quarter alone, we had an improvement of GP margin for General Automation and Smart Elevator brought by the GP margin decrease of the new energy vehicle business.

Another one is about the structure of our GP margin. Follow-up comment is that, yes, you’re having more sales contribution from the new energy vehicle business and driving down the GP margin. So I understood that. All right. No further questions for myself.

Thank you. All right. Thank you very much, Mr. Wang, for the questions. Now I would like to give the floor to the next investor.

Please identify yourself before. Thank you. So thank you. I am Soo Tan from JPMorgan. I have several questions on the automation.

First of all, you mentioned that for automation industry, had a quick growth for the third quarter. 30 plus downstream industries are growing. And you provided outlook for Q4 and the next year. I have a question which is that as for Q4 and next year, if you talked about the top nine months of the growth rate which was like 20 plus percent, which was quite confident. But in Q3, is quite close to 30%, not that aggressive.

I would like to understand why it is the case. Is there any uncertainty that you’ve been observing? So you can’t be actually telling a confident story as that of the Q3 or some of the segments are experiencing short term growth in Q3 not sustainable? All right. So I’d like to answer your question first.

I think that everybody is predicting the future, right? So the major reason is that last year in Q4, the order placement was quite big. So the base number of last year for order was big. Of course, the absolute value will be good, but because of the large base number of last year, the same period, it would drive down the overall growth rate year on year. So I think that it’s possible for us to have the momentum of the growth rate continue for the top nine months of this year.

All right. Thank you, understood. Another question is that just now you mentioned that for GP margin in Q3, you had a little bit increase, and that was probably attributable to the high gross margin product of Servo and PLC. So actually my impression is that last year you had a base number issue, so that had a very good year on year growth and because of this, the better industry’s performance downturn of last year. So for the rebounds that you are experiencing this year, was it because of the rebounds of the lithium battery industry or you had more penetration into more companies in this area, whether or not the momentum could be sustainable.

Right. Talking about the third quarter alone, the lithium battery would be contributive because the servo, PLC and the lithium batteries are actually three important segments. And apart from this, we have several other businesses that are having very good GP margin like semiconductor industry, Cerbo, PLC and the 3C equipments and numeric control tools and computer industry. So I think that the overall industry growing well, aforementioned industries are growing well. So that brought very good contribution to the growth of PLC.

Unnamed Executive, Management Team Member, Innovance: And

Song Zheng He, Board Director/Secretary, Innovance: also we have other industries that are using PLCs a lot. Right. Thank you very much for the answer. And next, have a question relating to intelligent robots. We know that your process is that through the Industrial Expo, you are publishing the new products.

So I think that more often you are going to make a standardized product for demo purpose with performance, which is much better than the existing products instead of what’s been done by the other companies that they just work with downstream robotic companies getting the draft from them and then start manufacturing of the mass product. So in one month after the publishing of your products and from a feedback of your customer standpoint, I think that what you’re doing is a totally different business model than the other competitors, all right? Or do you think that which one is more advantageous? Okay. I think that it’s not a simple answer.

You can’t have only one business model. It’s pretty much like the automotive industry. For the end customer of humanoid robots, there might be some demands of features and functions and performances, different customers are requiring differently. So we do the design accordingly. Definitely, there might be differentiation points.

Is that especially in other big human robot companies that are having totally different requirements of the components. But why we actually want to do a platform or mass product first, because we’re going to satisfy more customers. We just don’t want to manufacture one product that satisfy the needs of only one customer, which is a little bit risky. We want to make a standardized product because we want to build a platform on top of which that we’re going to have a very good structurized operation for technology and for something else. On that platform, we will do tailor made development based on some key accounts requirements.

But without a platform, it’s going to be very low efficient to do the R and D of customization for Innovus, right, for industrial automation We don’t actually funnel with only one customer. We want to make the so called generalized product that could be satisfying the most of the industrial scenarios. So we want to establish the platform in the first place, try to satisfy the needs of different customers. So platform operation is actually something that is different between Inovance and other companies.

Thank you for your answer. Give the floor to the next investor. And please, first of all, identify yourself. Hello, mister Song. This is from Morgan Stanley.

I have one question. In the industrial robotic agents, this is a new topic and trend. So we would like to ask you, mister Son, terms of AI agent, how is your strategy? And how beneficial this is to the overall industrial automation and also making agents. We have some companies that used to develop algorithms and softwares.

So I would like to ask you that from your opinion for those traditional algorithm developer trying to make the agents, do you think that they are more advantageous? All right, thank you. For this particular question, this is actually related to the large language model of AI agent, where did it come from? For Innovence, our large language model, we did not make those LLM internally. We have two agent pathways.

The first one is using the LLM from other vendors and now we’re integrating different LMs altogether and make our own and apply in industrial scenarios. From this standpoint, definitely speaking, the industry companies like us are better at this. And second thing is that now also we are developing some verticals, more language model. We are always doing this, right, since the past, like in the area of vision. And in the like predictable maintenance area, we made a lot of small models.

So if you are talking about softwares and algorithms, yes, they might be advantageous, but they have to integrate with the industrial scenarios that we are talking about. So be it which area or which direction they follow, you have to actually have the data from industrial scenarios. And it’s very difficult for you to actually acquire the big data from industrial scenarios and using that big data to do training, which is quite difficult to do. So actually, I don’t think that which company is like more advantageous than the others, but it’s more like the understanding of the industrial data and to the level of training. Now we have small models available, but because LLM is available now with lower and lower cost, have very good generalization.

So on top of LLM, we are actually integrating that with industrial end scenarios. This is what we are doing.

Unnamed Executive, Management Team Member, Innovance: Even if we do we work on a large model right now, it doesn’t mean necessarily it will grant you advantages in the future. Okay. Understood. Thank you, Mr. Song.

And now for industrial AI intelligence embodies, do you see any strong demand there from the demanding side? Well, I’m sure there are some. It just depends on how much value it brings to the customers. We internally, we have done quite a lot of cost management efficiency improvements, R and D, for example, programming, tests, coding or data sharing, etcetera. Those smart AI agents, we can use those.

They are based upon our internal data train, and we can really got help and benefit from that. Also, our after sales, we have a large database, which we can use to train that AI agent and then use it in a good way. But there’s another way now turning that AI agent brains into something we could launch it into customers’ scenarios, you would really be lack of the data, lack of the context there. So the industrial brain is something we’re now launching and embedded into our solution in order to meet the demand of future AI requirements of our customers. We haven’t put it into real application yet, but domestically, we have many AI agents.

We’ve been using those to help us increase our management efficiency. So I believe with that, it depends on the strategy. Now with our clients, we use the IFG, Industrial Brain, with lots of subsidiary platforms for models and the data, etcetera, that are embedded into our solution. It’s not an independent product on sale yet. Okay.

Thank you, Mr. Song, for your answering. Next one, investor with number 13O9. Please state your name and institution first. Hello, Ms.

Tseong. I am from Deutsche Bank. I am Irish. Well, I know it’s been a very long call, but I yet still have three questions. First, the question related to software, industrial software and digitalization.

I have two minor questions under this one. Well, industrial software is a key part of national strategy, not just in the previous five year plan, but also in the next. So while you are working on those industrial softwares, what’s the biggest challenge? Is it the development or the know how for the software market or if it is just the market popularization? Because we look at the software market, the potential TAM is really large.

And secondly, regarding software, you mentioned about the development path of Siemens. Siemens, in the past ten to fifteen years, they actually acquired and merged with, well, they acquired quite a lot to build up their software business. So do you have plans to do something similar? Or how do you wish to develop your software business, pain points, challenges and possibilities of acquisitions? Well, let me answer those questions.

Indeed, industrial softwares are hard to have a business with because there are so many different categorizations. PLM, CA plus, CA x, well, different industrial softwares, CA x, CAD, CA m, CA m b, CAM. Well, there are just so many different sorts. The fundamental mathematical and the physical model is, like, one of the biggest challenges. Overseas, they have many years of accumulations, decades of iterations.

And in China, we don’t have that foundation. Their past models are hard to be improved as well because they are left from so many decades ago. And domestically, really, our accumulation hadn’t been enough. The models cannot be used into different scenarios. And another reason is that the habits of customers is another problem.

They are used to those overseas software already. We also invested in some CADCAM companies. For example, we invested not long ago not long ago a Wuhan company working on DAFX. But Siemens, they’ve got a bigger LM platform, which consists module, does the manufacturer manufacturability analysis and the cost analysis. And that one company I just talked about, we invested in just to focus on that software, and they did it pretty well.

But it doesn’t fit into the Siemens PLM platform and doesn’t have synergy with the rest of other modules. Well, this is the current situation, the status quo of industrial software in China. They have very large platforms from overseas brands, and they got subsidiary modules. And in China, we mostly just have those smaller software. And secondly, in terms of acquisitions for us, acquisitions would be too expensive.

Consider Siemens, Dassault, whatever, and those famous targets are already acquired. Siemens, Electrics, Schneider, Emerson, they are doing things. They are always on the watch. And we can still try to merge and acquire a few very small companies, but mainly for the purpose of ecosystems. We invested in several industrial software companies in order to get into the ecosystem.

On our IFA platform, we want to incorporate those flow simulation, mechanical simulation, DAF, cost analysis, etcetera. Those software works that we developed that we invested in, we put those into our platform in order to compete against representatives of our competitors like Siemens. Well, we really don’t have the money to invest in those very expensive bids at the moment. So we would try to acquire a few smaller ones and then some ecosystem based investments in order to do it in a better and a longer way. Well, yes, indeed, Mr.

Song, I agree because we are now in a different historical process. So you do have that difference in terms of choosing the past. And it seems right now, flagged themselves as a software company. So would Innovus shift towards software plus hardware and then some more combinations in the future? Well, here, I have something else to say.

Let me interrupt you. Automotive software, I mean, industrial software, there are two opportunities we can chip into. One is that their architecture for those traditional ones, like SKADA, now in China, the architectures are much newer, new digitalized platform architecture, the new ABB structure. So with this new architecture, they are more easily to be integrated into APPs, apps, pass apps or into our platforms. These newer architecture are easily done with newer synergies, especially if data were provided.

While those traditional industrial softwares, they have very bad connections with each other, and that is also why at Siemens, there are so many different software platforms, and they do have that advantage in terms of architecture. But yet still, the fundamental mathematical and physical models are hard. Another chance there might be is AI. You know, before with their aerospace models, they developed all because of their smart human brains without AI. But now if we are to incorporate AI into industrial softwares, maybe they can iterate even faster.

They do have that historical advantage. But now with AI plus to digitalize the new architecture, maybe there’s gonna be some newer opportunities as well. That’s what I wanted to add. Well, thank you for that addition, Mr. Song.

Next, my second question regarding intelligent robots. You said you announced your product one month ago, but now you have already got official orders from customers. Could I ask what products is that order for? And looking into the next three to six months, what type of products are more likely to form orders? Well, right now, it’s in just experimental, a small order, but as long as those customers are willing to try and pay for it.

Well, some other customers are only willing to try but not willing to pay, but this one, they do. It’s a servo actuator, a drive actuator. Yes, understood. We know that product of yours just got launched one month ago. So already having some orders, even if it’s small, it’s still pretty good.

But what about next three to six months? What type of products will probably formulate orders sooner than other products? Well, this is quite hard to say, but I believe drive and the motor products, I personally believe it’s probably faster. Because with a lot of those modules, these OEMs, they can do their own, do it on their own. I mean, for the humanoid, the robot OEMs, they just want to purchase some parts and components, but not for drive and motors.

Next question, do you wish to go IPO in Hong Kong? I remember last quarter, you said about the Innovence Automotive on IPO is your main focus. But now since that IPO had went through successfully, what about Innovence itself? Do you wish to go IPO listed in Hong Kong? Well, we do have the plan but not put into our working agenda yet because the Chinese regulators also encourages so.

Many of the excellent Chinese companies already went listed on Hong Kong Stock Exchange. So we are considering it, but not on our agenda book yet. Okay. Thank you. I don’t have other questions.

Thank you, mister Song. Next, the one with number 8320, please state your name and institution first, please. Hi, mister Song. I am, Yubai Chow, a researcher analyst from Haitong International. So I know I probably last time.

I just have two minor question. One, in intelligent robots, you have actually laid out a great portfolio of parts and components, quite a lot of those. So in terms of R and D to sales, what kind of coordination you have with your And the next one, the digital energy management. What is the difference between that and the energy storage? We know it’s a bigger concept.

But apart from product and manufacturing, we really don’t know the business model of it. So could you please help to elaborate and clear our doubts? Okay. First, regarding the parts and the components, we have that coordination and synergies because it’s for humanoid robots. That synergy would naturally exist.

And of course, based upon customer demand, we would choose some parts because they probably developed some parts by themselves, some work, some don’t. So coordination and synergy always exist, for example, modules. Modules are always like synergies between multiple parties. Linear rotary modules, they’ve got the motors inside and the drives and the encoders and also the planetary screw rods or the harmonic wave, etcetera. It’s a coordination.

Song Zheng He, Board Director/Secretary, Innovance: And for digital energy management, actually, this is way more important. You could actually associate this step. As for digital energy management, first of all, you have to have, first of all, a digitized platform. And through this platform for the energy structure changes, for instance, we are talking about energy storage as a product. So helping this to realize the energy structure change.

And second is that for some of the high power consumption kind of process and products, we integrate them and think about how to make it more energy conservate. So introducing some intelligent technologies in. So from a solution standpoint from Innovus through digitization method, we could realize the energy structure change and also introducing more energy friendly technologies and processes in. At the end of the day, we’re able to make use of the energy in a most efficient way. This is actually the architecture that we are building.

So the level is definitely high. Thank you. Right. No further question from myself. Thank you.

Thank you very much investors for your questions and thank you Mr. Song for the answers. Due to limited time, we are going to close the Q and A section. Now I’ll give the floor back to Mr. Song to give us a summary.

Right. Thank you very much, dear investors. It has been already two hours for this conference call. Of course, for twenty twenty five Q3, the net profit attributable to the mother shareholders had the impact from the new electric vehicle business. But still, as what we have already said that for our Innovance businesses, have been working on several golden tracks.

The automation, integration with digitization and artificial intelligence, the kind of transformation from new energy vehicle all the way to intelligent vehicles, and we’re having intelligent chassis. And we’re sharing with everyone the intelligent robot and intelligent energy management as well. I hope that you are going to provide your valuable suggestions to us in order to be against the competitiveness and also against the overseas competition. We really value your recommendations. Thank you very much again for your long term support and caring for Innovence.

Thank you. This is the end of the conference call. Thank you.

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