Robotics Leader Faces 100% Surge in Orders

Heroes are born of the times!

Since Tesla unveiled its humanoid robot, domestic companies such as Estun and Xinshida have also engaged in the research and production of robotic bodies, leading to a boost in the performance of component manufacturers like reducers, lead screws, and sensors.

However, mass production of humanoid robots will require a few more years to realize.

Currently, the development of industrial robots is quite mature. From January to September 2024, the cumulative output of domestic industrial robots reached 416,000 units, reflecting a year-on-year growth of 11.5%, with the market size achieving $10 billion, and it is projected to exceed $11 billion by 2025.

Divided by the industrial chain, industrial robots can be categorized into upstream components, midstream robot bodies, and downstream applications.

The upstream components have been the fastest-growing segment in recent years. This includes core components like servo motors and reducers, as well as technical processing modules such as motion control systems and human-machine interaction systems.

Which part of the upstream sector presents the strongest predictability for development?

Among the technical processing modules, PLCs (Programmable Logic Controllers) serve as the computational systems that enable equipment automation. Their technological development is relatively mature, with numerous commendable companies emerging, including Inovance Technology, Xinjie Electric, and Leisai Intelligent.

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Among them, Xinjie Electric has demonstrated significant potential for development.

In terms of market share, Xinjie Electric is not the most outstanding player. In 2023, the company held a 7% share of the domestic small PLC market, ranking behind Inovance Technology.

However, from the perspective of the company's fundamentals, Xinjie is expected to become a "new hero" in the PLC field.

The confidence behind Xinjie primarily arises from three aspects:

1. Product Advantages

PLCs can be divided into two main categories based on technical complexity:

One category is the more complex medium to large PLCs, targeting project-based markets; the other is the less complex small PLCs, targeting the OEM market.

Domestic manufacturers primarily focus on small PLCs, resulting in a significant performance gap between domestic and overseas manufacturers.

Building upon this foundation, the company strives to provide comprehensive solutions to compensate for the performance shortcomings of standalone products, thereby increasing customer loyalty and capturing market share.

Additionally, the company has established core technological advantages.

The company has achieved self-sufficiency in core components like motors and encoders for low-cost small PLCs, while also laying out two technological paths for encoders: magnetic and optical.

Magnetic encoders can operate in harsh environments characterized by high temperatures and oil contamination, while optical encoders, with their high resolution and precision, are suitable for fields requiring stringent positional accuracy, such as CNC machines and printing machinery.

The dual technology path strategy lays a solid foundation for controlling costs and expanding downstream application scenarios.

2. Technological Advantages

Currently, the localization rate of the PLC market is 28.4%, indicating substantial room for substitution; medium to large PLCs represent a weak point for domestic manufacturers.

Coincidentally, Xinjie Electric has consistently introduced medium PLC products since 2017, including the XG and XS series, which offer notable advantages over small PLCs, such as faster speeds, larger capacities, and significantly enhanced functionality.

On the large PLC front, the company has already established relevant technological reserves and expects to launch a more mature product by early 2025.

By gradually improving its PLC product line, the company is well-positioned to unlock the medium and large PLC market in the future.

3. Growth Advantages

Leveraging its strengths in the small PLC market, Xinjie has established a complete product line encompassing "PLC + Human-Machine Interface + Servo System + Machine Vision + Robotic Arm."

In recent years, the servo product line has seen swift growth, gradually becoming the company's primary business, contributing nearly 50% to revenue in 2023.

How did the company achieve rapid growth in its servo products?

This is primarily due to the company's strategy of "exchanging low prices for market share."

Since the average price of the company's servo products has consistently been lower than those of competitors, the gross profit margin has also been relatively low; in 2023, the gross profit margin for these products was only 24.3%.

The company's servo products mainly target the mid-to-low-end market, where product homogeneity is severe, making the implementation of a low-price strategy effective; indeed, the market share of the company's servo products has significantly increased.

However, profits gained from price wars are ultimately hard-earned, and long-term improvement in product profitability is key.

So, how is Xinjie Electric enhancing its profitability?

First, by achieving self-sufficiency in core components.

The cost of the servo system mainly comprises drivers, motors, and encoders, accounting for 42%, 35%, and 11% respectively.

The company has essentially achieved self-sufficiency in core components such as motors and encoders while developing both magnetic and optical encoder technologies.

Magnetic encoders can function in extreme conditions, while optical encoders provide higher resolution and precision, making them suitable for fields with demanding positional requirements, such as CNC machinery and printing equipment.

The dual technology strategy supports cost control and facilitates the expansion of downstream applications.

Second, improving product structure.

The company has successively launched high-performance servo system products like the DS3E and DS5, which support motion bus control, increasing their sales proportions and, consequently, improving the gross margin of the servo system products.

In 2023, the gross margin for the company's servo system products increased by 0.34 percentage points compared to the previous year.

With enhancements in product capabilities, technological advantages, and improved profitability, the company has achieved steady growth in performance.

In the first three quarters of 2024, Xinjie Electric reported revenues of 1.21 billion yuan, marking a year-on-year increase of 11.9%; the net profit attributable to shareholders reached 170 million yuan, up 12.7% year-on-year.

Moreover, while the company's net profit growth rate may not be high, it demonstrates remarkable resilience.

In 2023, it was undoubtedly a challenging year for PLC companies, as the industry experienced negative growth. During the same period, industry leader Inovance Technology achieved single-digit growth in net profit, while Leisai Intelligent and Hechuan Technology saw their net profits decline by around 40%.

Conversely, Xinjie Electric's profit declined by 10%, maintaining a position within the upper tier of the industry, showing small performance fluctuations and reflecting strong risk management capabilities.

Looking ahead, Xinjie Electric is poised for a new round of growth.

1. Industry Recovery, Increased Orders

Based on the historical three-year cycle of PLCs, 2023 may represent the low point of the cycle, with 2024-2025 expected to witness gradual recovery.

The company’s order volume corroborates this observation.

Since April 2024, the company's order volume has accelerated significantly, with growth rates exceeding 20% from May to June. By the third quarter of 2024, the company’s contract liabilities amounted to 40 million yuan, an increase of 42.1% year-on-year, nearly doubling compared to the end of the previous year.

Although the third quarter is typically a slow season, the overall order volume this year still shows an upward trend compared to last year.

Given the company mainly employs a direct sales model with a longer payment cycle of approximately 3 to 6 months, the orders from the second half of this year are likely to positively influence the company’s performance in the first half of 2025.

2. Overseas Market, New Growth Opportunities

Due to considerations of labor costs, low-end manufacturing chains are gradually moving to emerging markets. For instance, textile machinery exports to Asian markets reached $1.09 billion in the first half of 2024, marking a 19.8% increase year-on-year.

In light of this, the trend of automation in emerging markets is also expected to strengthen.

It is anticipated that from 2024 to 2026, the small PLC market size will grow from 7.53 billion yuan to 8.62 billion yuan, with a compound annual growth rate of 7%. In 2023, the company generated overseas revenues of 330 million yuan, accounting for 22% of total revenue, indicating substantial room for improvement in this ratio.

If the company can seize opportunities in international markets, it will be well-positioned to enhance its performance more rapidly and directly.

To summarize, driven by the dual stimuli of industry recovery and international expansion, Xinjie Electric is likely to enter a new phase of performance growth. Furthermore, the company is poised to strengthen its competitive edge by enhancing product capabilities and adjusting its product strategy, with the potential to become the "new hero" in the PLC field.