Key takeaway

The company released its 2025 annual report and 1Q26 results. Performance is under short-term pressure due to weak downstream customer demand. The company recently announced price hikes for key products, and profitability is expected to gradually improve. The company maintains high R&D investment with a focus on industrial AI. Its equity incentive target aims for an annualized compound growth rate of over 100% for industrial AI revenue. As a leading domestic vendor in process industry automation, the company stands to benefit significantly from the potential hundred-billion-level long-term market created by industrial AI deployment in the process industry. Industrial AI is poised to become the core engine for the company's long-term earnings growth. The company's revenue for 2026-2028 is estimated to be RMB9.288bn/RMB10.55bn/RMB11.95bn, up 15.05%/13.60%/11.34% YoY. The net profit attributable to shareholders of the parent company is estimated to be RMB694mn/RMB977mn/RMB1.257bn, up 57.22%/40.79%/28.58% YoY. The corresponding PE multiple is 98x/69x/54x. We maintain "Buy" rating on the company.

Event

The company released its 2025 annual report and 1Q26 report. In 2025, the company achieved revenue of RMB8.073bn (- 11.66%), net profit attributable to shareholders of the parent company of RMB441mn (-60.48%), and a recurring net profit attributable to shareholders of the parent company of RMB331mn (-68.12%). In 1Q26, the company achieved revenue of RMB1.506bn (-6.29%), net profit attributable to shareholders of the parent company of RMB75mn (-37.81%), and a recurring net profit attributable to shareholders of the parent company of RMB46mn (-40.84%).

Quick Take

Weak downstream capex caused short-term earnings pressure. Product price hikes are expected to restore profitability. In 2025, revenue from the company's industrial automation and intelligent manufacturing solutions, instruments and meters, and industrial software fell by 19.77%, 17.56%, and 3.78% YoY, respectively. This reflects limited investment willingness from downstream customers, mainly in the chemical and petrochemical industries. Despite the revenue decline, the company continued to invest heavily in R&D. This reflects its active commitment to building capabilities in industrial AI and integrated solution platforms. In 1Q26, the company's year-on-year revenue decline narrowed, and gross margin recovered. Contract liabilities and inventory increased slightly from the beginning of the year, reflecting a recovery in orders on hand and willingness to stock up. The company's year-on-year profit decline in 1Q26 was mainly dragged by exchange losses, reduced tax rebates, and lower investment income. Excluding these factors, operating profit maintained a slight increase. The company recently announced price increases of 5%-10% for certain core products, which is expected to help restore its gross margin.

Industrial AI business deployment accelerates, with ambitious equity incentive targets. The company previously released its 2026-2028 equity incentive plan, which anchors on assessment targets of RMB1bn/RMB2.5bn/RMB5bn in industrial AI revenue. The compound growth rate of more than double reflects management confidence. In 2025, leveraging the deep integration of its Universal Control System (UCS) and Time-series Pre-trained Transformer (TPT), the company accelerated the large-scale deployment of Autonomous Operation Plant (AOP) solutions across multiple industries. Key cases include the TPT at Wanhua Ningbo chlor-alkali production base and the Sinopec Zhenhai Refining and Chemical integrated project. In the first quarter of 2026, the company's industrial AI business reached a scale of RMB184mn, approaching the full - year level of 2025, demonstrating a clear ramp-up trend. Industrial AI is poised to become the core engine of the company's long-term earnings growth.

Industrial AI has a prospective market space at the hundred-billion-yuan level. The company is a leading player in the process industry automation sector. Currently, there are approximately 280,000 installed units in China's process industries, which primarily rely on manual control. TPT can enhance the automation capabilities of these process industry units, progressively upgrading them from manual control with AI assistance to AIdriven automatic optimization with minimal human intervention. This significantly boosts production efficiency and reduces labor costs, with potential annual cost savings per unit reaching the tens of millions of yuan. Based on an estimated annual fee of approximately RMB1mn per unit, this translates to a prospective market space of RMB280bn.

Investment recommendation: The company has released its 2025 annual report and 1Q26 results. Near-term performance is under pressure due to weak downstream customer demand. The company recently announced price increases for key products, and its profitability is expected to gradually improve. The company maintains high R&D investment with a focus on industrial AI. Its equity incentive target aims for an annualized compound growth rate of over 100% for industrial AI revenue. As a leading domestic vendor in process industry automation,the company stands to benefit significantly from the potential hundred-billion-level long-term market created by industrial AI deployment in the process industry. Industrial AI is poised to become the core engine for the company's long-term earnings growth. The company's revenue for 2026-2028 is estimated to be RMB9.288bn/RMB10.55bn/RMB11.95bn, up 15.05%/13.60%/13.27% YoY. The net profit attributable to shareholders of the parent company is estimated to be RMB694mn/RMB977mn/RMB1.257bn, up 57.22%/40.79%/28.58% YoY. The corresponding PE multiple is 98x/69x/54x. We maintain "Buy" rating on the company.

Risks

1) Risk of downstream prosperity and capital expenditure falling short of expectations: The company's business primarily serves process industry clients. A downturn in process industry demand will directly weigh on the recovery pace of its main business orders and revenue, and product price increases may affect customer procurement enthusiasm. 2) Risk of industrial AI commercialization progressing slower than expected: There are uncertainties in the large-scale deployment of the TPT large model and the conversion to MaaS/RaaS subscription models. 3) Risk of intensifying industry competition: The DCS and industrial AI sectors are attracting more participants, which could pressure gross margins and market share. 4) Risks related to overseas operations and exchange rate fluctuations: The company's business spans multiple countries, and it lists depositary receipts in Switzerland. Exchange rate fluctuations may lead to volatility in non-operating income.