Morgan Stanley: Estun cuts low-margin business in first three quarters; fourth-quarter guidance points to faster revenue growth

Why can falling revenue still benefit margins?

Morgan Stanley believes that, despite lower sales in the third quarter of 2026, the shift toward higher-quality business supports margin expansion.
Domestic revenue fell 10% year over year in the first three quarters, including a 13% decline in revenue from low-margin system integration projects. Combined revenue from BYD and CATL fell by 420 million yuan year over year. Meanwhile, overseas revenue rose 15%, driven by expansion of the Estun brand in Europe.
Management expects fourth-quarter revenue of 1.5 billion–1.6 billion yuan, up 38%–47% year over year, and maintains its full-year 2026 guidance of a gross margin of approximately 32% and recurring net profit of 200 million yuan.

Robot shipments in the first three quarters of 2026 totaled 29.4 thousand units, up 19% year over year and growing faster than the industry. The total included 27.7 thousand Estun industrial robots and 1700 Codroid collaborative robots, with market share reaching approximately 10.5%.
Electronics and automotive electronics contributed the most incremental shipments, followed by automotive parts, lithium batteries and metalworking. Electronics accounted for more than 20% of shipments but contributed less than 10% of revenue, reflecting lower average selling prices for its products.

Cloos revenue also declined in the first three quarters of 2026 because of project delivery timing. Management said, however, that orders were at a historical high, with a backlog of approximately 190 million euros, up more than 20% year over year.
Cloos projects typically run for 6–12 months, and the company has set a revenue target of more than 200 million euros for 2027. Morgan Stanley identifies Cloos, overseas growth and continued margin expansion as key earnings drivers, while viewing execution as key to further upside.

Codroid had standalone revenue of approximately 54 million yuan and a net loss of approximately 14 million yuan in the first three quarters. On consolidation, it contributed approximately 39 million yuan in revenue to Estun while reducing net profit by approximately 7 million yuan.
The collaborative robot business has been profitable since June, while embodied intelligence research and development remains the main source of losses. Estun focuses on specific applications and integrates third-party foundation models.
Morgan Stanley maintains its “equal-weight” rating on Estun, with a price target of 29.60 yuan.