Hengli’s net profit in 4Q25 dropped 10% YoY to RMB647mn, which is 10%/5% below our/Bloomberg consensus estimates. The major deviation came from (1) a lower-than-expected gross margin (-6.11ppts YoY to 40.6%) due to higher sales of non-excavator component products; and (2) a RMB206mn net finance expense due mainly to fx loss (appreciation of RMB). That said, we are staying positive on Hengli as we expect continuous penetration into different downstream segments, as well as the structural growth outlook of humanoid robots. We slightly revise up our 2026E/27E earnings forecasts by 1%/4%, due to higher revenue and lower expense ratio assumptions. We slightly revise up our TP to RMB109 (from RMB105), based on 42x 2026E P/E (+1SD above the historical average unchanged, to reflect the machinery upcycle and humanoid robot components growth). We see any post-results share price pullback as buying opportunities.

Key highlights in 2025 results: Revenue in 2025 grew 17% YoY to RMB10.9bn (hydraulic cylinders: +10%; pump & valve: +21%; hydraulic systems: +30%; components: +30%). Blended gross margin contracted 1.2ppts YoY to 41.6%, due largely to a 2.9ppt YoY contraction of hydraulic cylinders margin. EBIT was +16% YoY due to lower SG&A and R&D expense ratio. Net profit only increased 9% YoY to RMB2.73bn due to a sharp reduction of net finance income as a result of FX loss. Operating cash inflow dropped 27% YoY to RMB1.8bn.

Risk factors: (1) Slowdown of demand for hydraulic components; (2) slower-than-expected new business development.