Equity Research

2H25 Outlook: Defensive+AI as barbell approach to counter softening FA

In light of the recent market concern around whether the “Anti-Involution” campaign will be a major headwind for the China FA (factory automation) market, our updated analysis on the China manufacturing capex cycle suggests that there will be no significant drag down but also no visible leg up. We expect a prolonged modest decline in automation demand ahead (2025E-2027E) and extend our China industrial automation market forecasts to -3%/-2% yoy in 2026E/27E vs. 2025E of -1% yoy (tuned down from through-cycle normalized growth previously).

Sanhua Intelligent Controls (2050.HK/002050.SZ): High visibility humanoid robot actuator play with a solid core business; Initiate H-share at Buy

UPGRADES:

• AVIC Jonhon (002179.SZ): Upgrade to Buy from Neutral on solid A&D growth outlook, rising liquid cooling contribution, and profitability inflection in 2Q25E
  
• CRRC Corp. (1766.HK, 601766.SS): Most attractive dividend yield play among coverage; Upgrade CRRC-H/A to Buy/Neutral from Sell
• Luster LightTech Co. (688400.SS): Surging optical MoCap business driven by humanoid training demand; U/G to Neutral

DOWNGRADES:

• Estun Automation Co. (002747.SZ): High exposure to unfavorable end-markets and ytd outperformance unwarranted; down to Sell
• Wuhan Raycus Fiber Laser Tech (300747.SZ): Upside from defense exposure overdone, fiber laser generator outlook challenging; d/g to Sell

6 Aug 2025 | Research | Equity - Jacqueline Du