Citi: Hengli Hydraulic: Mexico and ball screw capacity expansion as Citi looks to faster profit growth in 2027

Why are revenue and profit growing at different rates?

Citi forecasts Hengli Hydraulic's 2026 revenue at 14.266 billion yuan, up 30.4% year on year, and net profit at 2.879 billion yuan, up only about 5%. The bank expects the full-year net margin to fall from 25.0% in 2025 to 20.2%.
In the third quarter of 2026, revenue from non-excavator pumps and valves grew 46% year on year, excavator valve revenue rose 38%, and non-excavator cylinder revenue grew only 12%. Management said recurring profit rose 39% year on year in the third quarter and gross margin improved quarter by quarter during the year.
Foreign exchange losses in the third quarter were 34 million yuan, while other currency-related hedging positions generated an additional loss of 120 million yuan.

Citi expects net profit to reach 4.141 billion yuan in 2027, up 43.9% year on year. Management expects performance to improve in 2027 as the Mexico plant and the ball screw and linear guide plant reach greater production scale.
Management expects the Mexico plant to break even when its 2027 revenue exceeds 500 million yuan. The 2027 revenue target for the ball screw and guide business is 800 million to 1 billion yuan, at which point the plant will also contribute a profit.
Scale is a condition for this assessment: Citi notes that profitability could fall short of expectations if economies of scale at the two plants are weaker than expected.

In the third quarter of 2026, ball screw and linear guide revenue was 117 million yuan, up 520% year on year. A large order for battery-swapping stations made linear guides the main source of revenue.
The company targets revenue of more than 300 million yuan for the business in 2026 and 800 million to 1 billion yuan in 2027, but expects its gross margin may be lower than that of the core business in the coming years. Revenue growth therefore may not translate into profit at the same rate.

Management expects the proportion of US demand covered by the Mexico plant to rise from the then-current 60%–70% to 100% by the end of 2026. It expects US business revenue to reach 800 million yuan in 2026 and grow a further 30% year on year in 2027.
The United States is conducting anti-dumping and countervailing-duty investigations into cylinders from China, Mexico and India. Management believes the investigations will affect all participants and will not put Hengli at a disadvantage.
Hengli may receive new orders, including for motors used in robot bodies, from a key US robotics customer. It also plans to invest 300 million yuan to expand the Mexico plant's production capacity for embodied intelligence products to meet that customer's demand.

Citi raised its revenue forecasts for 2026 and 2027 by 3% and 4%, respectively, but left its net profit forecasts for both years broadly unchanged. Its net profit forecast is 11% below market consensus for 2026 and 1% below for 2027.
Citi maintained its Buy rating and 135 yuan target price, valuing the company at approximately 44 times forecast 2027 earnings. The valuation reflects potential valuation upside from the core business and the growing share of the humanoid robotics business.