J.P. Morgan: Leader Drive’s third-quarter sales accelerate, while capacity expansion and product mix shift weigh on gross margin

Why did third-quarter revenue growth accelerate?

Leader Drive’s third-quarter 2026 revenue was 242 million yuan, up 56% year on year. Growth accelerated from 36% in the second quarter, despite a higher comparison base.
Management attributed growth to increased market share in industrial robots and a ramp-up in the embodied intelligence robotics business. Following discussions with management, J.P. Morgan estimates that embodied intelligence accounts for about 30% of total sales this year, up from 15%–20% a year earlier, corresponding to at least a doubling of shipments for humanoid robot applications.

Third-quarter gross margin was 33.4%, down 6.2 percentage points year on year, a larger decline than the 2.5 percentage-point fall in the first half. J.P. Morgan believes the main reasons were a higher share of humanoid robot products and increased depreciation and amortization from capacity expansion, rather than aggressive price cuts.
Expense control partly offset the gross margin decline: third-quarter net profit attributable to the parent was 52 million yuan, up 29% year on year, below the revenue growth rate; recurring profit rose 40% year on year. Management’s medium-term gross margin target is about 30%, supported by improvements in scale, product mix and in-house production efficiency.

The bank’s full-year model implies fourth-quarter revenue of 309 million yuan and net profit attributable to the parent of 63 million yuan, up 88% and 106% year on year, respectively. J.P. Morgan believes the revenue target is achievable, but a margin recovery depends on production at scale and operating leverage.
The model implies fourth-quarter gross margin will rise to 45.4%, above the actual 33.4% in the third quarter. Meanwhile, operating cash flow was a net outflow of 71 million yuan in the first three quarters, compared with a net inflow of 110 million yuan a year earlier; the model forecasts a net inflow of 199 million yuan in the fourth quarter.
Capital expenditure was 141 million yuan in the first three quarters, and the model implies fourth-quarter capital expenditure of 871 million yuan, with capacity expansion investment concentrated at year-end.

The company targets capacity of more than 1 million units in 2026 and about 2 million units in 2027, reaching an annualized 4 million–6 million units within three years. Management believes capacity expansion will help meet demand and pursue global leadership, but the main bottlenecks are labor, process maturity and consistency across multiple product categories.
The company is expanding beyond its core harmonic reducers into planetary and cycloidal solutions, as well as roller screws and actuators, to meet the torque, shock resistance and cost requirements of different robot architectures. This could increase its content supplied per robot; near-term results depend on conversion into deliveries, capacity ramp-up and the balance between market share and margins.
J.P. Morgan maintains its Overweight rating and a December 2027 price target of 358 yuan; downside risks identified by the bank include slower-than-expected sales growth, intensifying competition and rising downstream pricing pressure.