TS Tech AI Business Accelerates While Auto Weakness Persists; Maintain Neutral Rating

Overview

JPMorgan maintains a neutral rating on TS Tech. FY26 performance shows AI infrastructure (data center cooling systems and Bloom Energy SOFC components) becoming core growth drivers, but progress on humanoid robots remains slow, and weak auto demand in China suppresses margin recovery, offsetting positive contributions from new businesses. Based on performance update and upward revision of AI-related business assumptions, JPMorgan raises target price from HK$20 to HK$22, but maintains a 10x discounted PE valuation.

Core views

Significant margin decline: H2 net margin down 3.6 percentage points YoY to 3.8%, mainly due to delays in NEV launches in China, price pressure, and increased engineering investment. Auto business continues to be weak: APG revenue flat YoY, market exposure shrinks due to joint venture auto enterprises transformation in China, but domestic NEV enterprise share rise brings partial hedging. Industrial/IPG business returns to growth: Revenue up 7% YoY, driven by data center cooling, medical, and garden equipment, but US surgical instrument demand drags down part of performance. AI infrastructure expands faster than robotics: SOFC components locked as core supplier layer for Bloom Energy, data center cooling business entered NVIDIA ecosystem; humanoid robots completed sample testing and entered commercial negotiation stage, short-term contribution limited.

Analysis framework

JPMorgan analyzes TS Tech investment value through three dimensions: 1) Profit composition breakdown: Clarify weak auto business (intensified competition among Chinese OEMs) vs emerging tech business growth (data centers, SOFC) divergence impact on corporate gross margin; 2) Long-term potential assessment: Quantify phased impact of AI infrastructure (e.g., SOFC business 12-13% market share assumption) and humanoid robot commercialization time expectations on financial targets; 3) Risk discount modeling: Adopt 10x PE (2 std dev lower than 3-year global peer average) reflecting insufficient profit visibility and transformation execution risk.

Methodology notes

• Valuation MethodPEG Valuation

  Institutions use discounted PE valuation to assess transformation-period enterprises

  The report uses 10x expected PE (below industry mean by nearly 2 standard deviations) to construct target price, indicating analysts believe when companies face business transformation uncertainty and shareholder return pressure, markets typically require valuation compensation for risk.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TS Tech (0179.HK)

  Core analysis target, dual attributes of AI infrastructure and auto business

  Strengths

  Data center cooling enters NVIDIA supply chain, SOFC component core supplier status, global manufacturing network

  Weaknesses

  Auto business margin continues to face pressure, new business investment raises CAPEX

  Comparison

  Has technology transformation potential compared to auto parts peers, but weaker valuation than pure AI hardware companies

  Risks

  Price war in Chinese NEVs, slowdown in humanoid robot volume release

• Bloom Energy (BE.US)

  Core customer of SOFC components

  Strengths

  TS Tech expected to occupy 12-13% share of its SOFC interconnectors

Key data

• H2 Fiscal Year Net Margin3.8%Down 3.6 percentage points YoY
• FY28 SOFC RevenueUSD 97 millionExpected to account for nearly 2% of total revenue
• IPG Revenue YoY+7%First positive growth in three years

Impact & implications

For TS Tech, although AI infrastructure business climbs rapidly, it is still insufficient to offset automotive department pressure; the report believes observation is needed on three aspects: 1) Can ramp-up rate of new orders from Chinese car companies improve capacity utilization? 2) Is international release speed of SOFC and cooling systems advancing? 3) Will humanoid robot commercialization path arrive earlier?

Risks

• Price pressure on Chinese NEVs has not eased
• Commercialization progress of humanoid robots below expectations
• US tariff policies disrupt global supply chain

What to watch

• Order ramp-up rate of Chinese NEV companies
• NVIDIA data center deployment pace affecting cooling system demand
• Progress of humanoid robot project contract signing