We arranged a site visit tour for investors to Hengli’s production base in Changzhou on 3 Jun. Key takeaways include: (1) Strong demand for linear guideways driven by machine tools and semiconductor segments; (2) Huge potential for ball screws for humanoid robots due to strong commitment from the major customer; (3) Capacity for cylinders, pumps and valves are running at full utilisation driven by a wide range of downstream demand such as mining equipment and agricultural machinery. We revise up our 2027E/28E earnings forecasts by 4%/7%, due to higher volume assumptions. We now forecast Precision Industry revenue (linear guideways & ball screws) to increase from RMB80mn in 2025 to RMB0.4bn/1bn in 2027E/28E. We revise up our TP to RMB125 (from RMB109), based on 48x 2026E P/E, 1.5SD above the historical average (previously 1SD). Our expanded premium is to reflect both the upcycle of hydraulic business and the huge growth potential of precision business. Reiterate BUY.

Key takeaways:

Linear guideways: At present, 90% of the linear actuator products are linear guideways which are produced in Changzhou factory. The products are applied in machine tools and semiconductor sectors which saw very strong demand. High precision is required in these applications.

Ball screws for humanoid robots: A typical humanoid robot needs a total of 14 ball screws (4 for each leg; 3 for each arm excluding fingers). Hengli believes the keys to success in ball screw business include (1) product design; (2) production yield rate (for cost reduction); and (3) inspection (for product quality). Hengli has strong bonding with the major overseas customer and can participate in certain product design. Hengli’s products currently account for <10% of the total value of a humanoid robot but will potentially increase to 10-20% in the future. According to Hengli, ball screw shipment volume is insignificant at the moment but is expected to see strong volume growth in 2H26E, and it will likely allocate the production of ball screws to Mexico plant. We expect Hengli will further expand its capacity over the coming years.

Strong growth across hydraulic business lines: Demand for excavator cylinders, pumps & valves is robust, and capacity is running at full utilisation. For instance, strong mining activities in Africa have boosted high replacement demand for mining equipment. For pumps & valves, Hengli is confident of increasing their penetration in the major US machinery manufacturer (10% at present), as the Japanese hydraulic components makers have just raised ASP.

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