Jefferies-SaaS、人工智能和机器人技术尚未抵消核心需求的疲软；D_G将保持-20250911【16页】

China (PRC) | Software Supcon SaaS, AI and Robotics Not Yet OffsettingWeak Core Demand; D/G to Hold 2Q missed as rev down 12% and margins fell, driving a 37% NP drop. Weattribute this to weak demand from its core downstream markets: chem/petrochem, price competition on DCS, and weak overseas growth. Despiteits efforts to migrate to SaaS, industrial AI and robotics, these are still in anearly stage and cannot offset weak growth in its core business. We've cut Slowing demand in core downstream markets is the biggest overhang.Supcon reported 2Qresult miss with topline down by 12% and below cons by 18%. GM and OPM decreased by1.4pp/3.1pp yoy, driving a 37% NP decline. Supcon's results have missed four quarters in arow, which is driven by: 1) weak demand in its core downstream chem/petrochem/oil & gasindustries as de-stocking has led to scale back in IT investment; 2) SaaS migration's impact onNT software (SW) rev; 3) slowing overseas growth momentum due to personnel changes and SaaS, industrial AI and robotics are still small to move the needle.We believe Supcon hasrightly shifted its strategic focus to SaaS (SW subscription), industrial AI, and robotics. In1H25, It added 200+ new SaaS customers (~600 at end of 2024) and generated Rmb~60mof subscription rev, and targets Rmb~200m in rev in FY25. SaaS migration and weak demandfrom its core customers provide a double whammy effect, driving a 7% fall in SW rev in 1H25. In Aug, Supcon launched its industrial AI model TPT 2.0. It provides consulting services toprocess manufacturing customers and allow them to generate AI agents to tackle specificproduction issues. Supcon already signed 100+ TPT 2.0 projects and won a handful of AGV = Automated Guided Vehicle; CV = In 1H25, robotics expanded use cases from warehouse AGV and routing inspection topipeline inspection, high-temperature sampling and factory floor operation. Aramco is now anoverseas lighthouse customer. In 2025, mgt expect robotics to bag Rmb300~500m CV andRmb200~300m rev. While these are the right strategic moves, they would contribute only ~9% D/G to Hold.We cut our 2025-27 NP forecasts by 40+% on lower automation and SW rev,reduced GM and higher opex ratios. Our rolled forward DCF-based PT based on 10.88% WACCand 3% terminal growth implies 11% downside. Thus, we downgrade Supcon to Hold. Supcon'svaluation at 41x 2025E PE or 1.4x PEG is expensive. Our 2025E/26E EPS are 17%/16% <cons. Edison Lee, CFA * | Equity Analyst852 3743 8009 | edison.lee@jefferies.com Matt Ma * | Equity Analyst852 3767 1109 | matt.ma@jefferies.com Nick Cheng * | Equity Analyst+852 3743 8750 | nick.cheng@jefferies.com Jacky He * | Equity Analyst+852 3743 8084 | jacky.he@jefferies.com Annie Ping, CFA, FRM * | Equity Associate+852 3767 1273 | annie.ping@jefferies.com Zhejiang Supcon Technology Group Co., LTD (688777 CH) The Long View: Supcon Investment Thesis / Where We Differ •Supcon is set to benefit from industrial control localization trends withmarket share gain from foreign peers in high-end process manufacturingsectors•The transition from industrial 3.0 to industrial 4.0 enables Supconto generate up-sell opportunities among automation customers forindustrial software Upside Scenario,CNY65.38, +30% Downside Scenario,CNY25.54, -49% Base Case,CNY45, -11% •Revenue to grow at a 13% CAGR in 2023-27E, •Revenue to grow at a 6% CAGR in 2023-27E,driven by process automation market sharedeclinefrom 2.2%to 1.8%due to fierce •Revenue to grow at a 9% CAGR in 2023-27E,driven by process automation market sharegain from 2.2% to 2.4% and industrial software market share decline from 0.73% to 0.65% asSW biz transition to subscription model.•Adj OPM to grow from 10.1% in 2023 to 13.4%in 2027E, driven by GPM improvement and driven by process automation market sharegain from 2.2% to 2.9% and industrial software market share gain from 0.73% to 0.82%•Adj OPM to grow from 10.1% in 2023 to 17.9%in 2027E, driven by GPM improvement andoperating leverage •Adj OPM to decline from 10.1% in 2023 to7.3% in 2027E, driven by GPM improvementbut large increase in opex-to-sales-ratios. •End-2026 DCF-based PT Rmb25.54 with 3.0%terminal growth and 10.9% WACC, implying32.3x 2026E P/E Sustainability Matters Catalysts •Strong demand recovery from chemicals andpetrochem industries•Strong equipment upgrade demand inducedbythe Rmb300bn ultra-long-term specialtreasury bond Top Material Issue(s): 1.The speed at which process manufacturing players adopt digital solutions to reducecarbon emission. The process manufacturing sector, including steel, construction, ESG Target(s): 1.Provide low-carbon 5T (automation tech, information tech, process tech, operationtech, and equipment tech) solutions, low-carbon consultation services, 5S storesfor clients’ low-carbon needs, and online platform PLANTMATE for carbon-relatedproduct procurement channels and technology. Questions for Mgmt: 1.What is the impact on margin of utilizing more sustainable inp