Hengli’s 1Q26 net profit came in at RMB653mn, which increased only 6% YoY largely due to the recognition of net finance expense (RMB162mn vs net finance income of RMB199mn in 1Q25) as a result of the appreciation of RMB. EBIT grew 34% YoY to RMB775mn, driven by an impressive revenue growth of 33% YoY. Meanwhile, operating cash inflow in 1Q26 surged 9x YoY from a low base to RMB518mn. We see these as a set of decent operating results. We think FX volatility is normal and believe it should not affect the core valuation of Hengli. Maintain BUY with an unchanged TP of RMB109, based on 42x 2026E P/E (+1SD above the historical average unchanged, to reflect the machinery upcycle and humanoid robot components growth).

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