4Q25 earnings miss on gross margin and FX loss; But structural growth outlook still intact

4Q25 earnings miss on gross margin and FXloss; But structural growth outlook still intact Target PriceRMB109.00(Previous TPRMB105.00)Up/Downside5.5%Current PriceRMB103.32 Hengli’snet profit in4Q25dropped10% YoY to RMB647mn,which is 10%/5%below our/Bloomberg consensus estimates.The major deviation came from (1)a lower-than-expected gross margin (-6.11pptsYoY to 40.6%) due to highersalesofnon-excavator component products; and (2) a RMB206mnnet financeexpense due mainly to fx loss (appreciation of RMB).That said, we are stayingpositiveon Hengli as we expect continuous penetration into differentdownstream segments, as well as the structural growth outlook of humanoidrobots.Weslightlyrevise up our2026E/27Eearnings forecastsby 1%/4%, duetohigher revenue and lower expense ratio assumptions.Weslightlyrevise upour TP to RMB109(from RMB105),based on42x2026EP/E(+1SD above thehistorical averageunchanged, to reflectthe machinery upcycle andhumanoidrobot components growth).We see anypost-resultsshare price pullback asbuying opportunities. China Capital GoodsWayne FUNG, CFA(852) 3900 0826waynefung@cmbi.com.hk Stock Data Key highlights in 2025 results:Revenue in 2025 grew 17% YoY toRMB10.9bn (hydraulic cylinders: +10%;pump & valve: +21%;hydraulicsystems: +30%;components: +30%). Blended gross margin contracted1.2pptsYoY to 41.6%,due largely to a 2.9ppt YoY contraction ofhydrauliccylindersmargin. EBIT was+16%YoY due to lower SG&A and R&Dexpense ratio. Net profitonly increased 9%YoY toRMB2.73bndue to asharp reduction of net finance income as a result of FX loss.Operating cashinflow dropped 27% YoY to RMB1.8bn. Shareholding Structure Risk factors:(1) Slowdown of demand for hydraulic components; (2)slower-than-expected new business development. Source: FactSet Related reports: Capital Goods–Strong export of earth-moving machinery in Feb–9Mar2026(link) Capital Goods-Strong momentum ofnon-earth-moving machinery sales in Jan–16 Feb2026 (link) Jiangsu Hengli–3Q25 earnings growthaccelerated to 31% YoY–28 Oct 2025(link) Source: Bloomberg,company data, CMBIGM estimates Source: Bloomberg,company data, CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or inpart, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The HongKong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852)3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International Capital Corporation Limited (a wholly ownedsubsidiary of China Merchants Bank) Important DisclosuresThere are risks involved in transacting in any securities. The information contained in this report may not be suitable forthe purposes of all investors.CMBIGM does not provide individually tailored investment advice. This report has been prepared without regard to the individual investment objectives, financial positionor special requirements. Past performance has no indication of future performance, and actual events may differ materially from that which is contained in thereport.The value of, and returns from, any investments are uncertain and are not guaranteed and may fluctuate as a result of their dependence on theperformance of underlying assets or other variable market factors.CMBIGMrecommends that investors should independently evaluateparticular investmentsand strategies, and encourages investors to consult with a professional financial advisor in order