Industrial Automation Recovery Drives AirTAC and Hiwin Stock Price Increases
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Industrial Automation Recovery Drives AirTAC and Hiwin Stock Price Increases
Morgan Stanley interprets China's May manufacturing PMI data, believing that industrial automation demand will support AirTAC and Hiwin's stock performance.
- China's May manufacturing PMI was 50.0, slightly below the previous value of 50.3.
- The industrial automation sector is expected to continue its recovery trend, driven by technology, battery, and other traditional industry demands.
- Maintain 'Overweight' ratings for AirTAC and Hiwin, with target prices of NT$2000 and NT$389 respectively.
- AirTAC has lower valuation, while Hiwin may benefit from margin improvement.
Report interpretation
Overview
This research report released by Morgan Stanley focuses on China's May manufacturing PMI data and its impact on the Greater China tech hardware industry. The report states that despite a slight decline in manufacturing PMI, the recovery in the industrial automation sector will continue, mainly supported by demand from technology, batteries, and other traditional industries. Based on this, Morgan Stanley maintains 'Overweight' ratings for AirTAC and Hiwin, setting target prices at NT$2000 and NT$389 respectively.
Core views
Core views of the report: • Demand in the industrial automation sector will continue driving market recovery. • AirTAC is expected to outperform the market average through a broader product portfolio and market share growth, with current valuation at only 21x 2027 expected P/E, which is relatively reasonable. • Hiwin may achieve higher margin expansion in the coming quarters, benefiting from improved utilization rates and price increases, although current valuation is already approaching cyclical highs (36x 2027 expected P/E). If the upcycle continues, there remains potential for upward revisions to earnings forecasts. Additionally, the report mentions that China's May manufacturing PMI was 50.0, slightly below the previous value of 50.3, with production index declining 0.3 percentage points month-on-month to 51.2, and new orders index declining 0.7 percentage points to 49.9, which may reflect the impact of rising oil prices and weakening fiscal stimulus.
Analysis framework
Morgan Stanley employs the following analytical methods: • Assess overall demand trends in the industrial automation industry based on China's manufacturing PMI data. • Combine fundamental company analysis, including factors such as product portfolio, market share, and margin changes, to evaluate the growth potential of AirTAC and Hiwin. • Use cyclical valuation methods (such as P/E ratios) combined with industry sentiment adjustments to determine target prices. The report also emphasizes the correlation between market sentiment and business cycles, considering it reasonable to apply peak valuations during upcycles.
Methodology notes
The report assesses demand conditions in the industrial automation sector through manufacturing PMI data.
Manufacturing PMI serves as an important indicator on the demand side, reflecting overall industry demand trends and helping judge the growth potential of related companies.
The report uses price-to-earnings (P/E) ratios for valuation analysis.
Price-to-earnings ratio is a commonly used indicator for measuring company valuation levels, especially suitable for growth companies. The report adjusts valuation multiples according to industry cycles to reflect market expectations at different stages.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- 1590.TW (AirTAC International)Benefits from industrial automation demand growth and market share improvements.
- Strengths
- Diversified product portfolio, continuous market share growth.
- Comparison
- Compared to Hiwin, AirTAC has more attractive valuation.
- Risks
- New product development investments exceeding expectations but demand weaker than expected.
- 2049.TW (Hiwin Technologies Corp.)Benefits from margin expansion brought by improved utilization rates and price increases.
- Strengths
- Margins may improve further in the next few quarters.
- Comparison
- Compared to AirTAC, Hiwin has higher valuation but potential for upward revisions to earnings forecasts.
- Risks
- Global geopolitical risks may have broader impacts on industrial automation demand.
Key data
- China May Manufacturing PMI50.0Decreased by 0.3 points from April, slightly below expectations.
- AirTAC Target PriceNT$2000Corresponding to 21x 2027 P/E ratio.
- Hiwin Target PriceNT$389Corresponding to 37x 2027 P/E ratio.
Impact & implications
The report believes that as industrial automation demand continues to grow, the stock prices of AirTAC and Hiwin have further upside potential. AirTAC, with its diversified product portfolio and market share gains, has attractive valuation; while Hiwin may benefit from improved utilization rates and price increases, with future margins expected to improve further.
Risks
- Larger-than-expected economic downturn in China.
- Longer time required for micro linear guide rail business development.
- New product development investments exceeding expectations but demand weaker than expected.
- Global geopolitical risks may have broader impacts on industrial automation demand.
What to watch
- Trends in China's manufacturing PMI changes.
- Actual growth in industrial automation demand.
- Whether AirTAC and Hiwin's financial performance meets expectations.