J.P. Morgan: Estun Automation’s third-quarter revenue falls, with margin improvement unable to mask growth pressure

What drove the third-quarter disappointment?

Third-quarter revenue in 2026 was 1.101 billion yuan, down 12% year on year and below the single-digit growth JPMorgan had previously expected; revenue for the first three quarters was 3.699 billion yuan, down 3% year on year.
Revenue in the first three quarters reached only about 70% of JPMorgan’s full-year forecast, below the 77% average for the same period over the previous three years, making the full-year target more dependent on the fourth quarter.
Profit performance was better than revenue: recurring profit in the third quarter was approximately 46 million yuan, broadly in line with management guidance; net profit attributable to the parent was 19 million yuan, with a net margin of 1.7%, below the company’s full-year target of 5%.

Industrial robot shipments in the first three quarters totaled 27.7 thousand units, up 18.6% year on year, yet core robotics revenue grew only 4%. Electronics applications accounted for more than 20% of shipments; these applications typically use smaller robots, lowering the average selling price.
The company deliberately reduced low-margin system integration orders, and revenue from that business fell 13% year on year in the first three quarters; it also reduced business with key customers including BYD and CATL, and domestic revenue fell approximately 10% year on year.
Overseas sales partly offset domestic pressure: overseas revenue rose 15% year on year in the first three quarters, accounting for about one-third of total revenue. JPMorgan believes it will take time for the overseas business to become a more important growth driver.

The gross margin for the first three quarters was 32.4%, up 3.8 percentage points year on year; the gross margin for industrial robots and intelligent manufacturing systems was 32.5%, while that for Estun-brand robots was 35.3%.
The company improved margins by selecting orders, adjusting its business mix and controlling costs. JPMorgan believes that if revenue remains below plan, a recovery in gross margin alone will not be enough to offset the shortfall; sustained improvement also depends on growth in high-quality revenue rather than continued withdrawal from low-margin business.
The domestic robotics market is shifting from incremental growth to competition for market share. Management said KUKA’s pricing is more aggressive than the company’s; JPMorgan believes maintaining margins while pursuing high-end customers will be a protracted contest.

Management cut its 2026 full-year revenue growth guidance from 20% at the start of the year to about 10%, targeting fourth-quarter revenue of 1.5 billion–1.6 billion yuan, partly through faster deliveries by overseas subsidiaries Cloos and MAI.
Cloos has an order backlog of approximately 190 million euros, at a historical high and up more than 20% year on year; however, its project delivery cycle can be as long as 6–12 months, so order growth may not immediately translate into revenue. Management expects overseas sales to grow at a high double-digit rate in 2027.
JPMorgan maintains its Underweight rating, with a December 2027 price target of 21 yuan, based on 3 times expected 2027 revenue. The bank sees a weak revenue outlook, high valuation and intensifying domestic competition.