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June 24, 2017

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CLSA praises Advantech-Hiwin robot alliance

TAIPEI -- Brokerage CLSA Ltd. has raised its price target for shares of industrial computer supplier Advantech Co. (研華科技) to NT$270 (US$9.02) from NT$210 after the company forged a robotics alliance with machine tool manufacturer Hiwin Technologies Corp. (上銀科技).

Advantech and Hiwin held a press conference on Monday to announce their partnership, which aims to capitalize on the explosive demand for industrial robots.

By providing key parts for the machines, Advantech and Hiwin said they plan to build a robotics ecosystem in Taiwan that can help system integrators or robotic-arm producers develop solutions more easily and target different applications for non-automotive industries in China, such as electronics, semiconductors, shoe-making and textiles.

"While we do not expect robots to generate meaningful revenue for Advantech in the next 12 months, we believe the acquisition of LNC Technology Co. (寶元數控) in August 2013 and strong channels in China will help Advantech become a major player in robot controllers and machine visions," said C.K. Cheng, a Taipei-based analyst with CLSA.

"Entry into the robotics business will further expand Advantech's addressable market and will likely justify a stock rerating," he wrote in a Monday research note.

Advantech's New Push

Advantech had limited exposure to robotics until its acquisition of LNC, a Taiwan-based maker of computer numeric controllers (CNC), which is estimated to have about a 6-8 percent share of the CNC market in China, according to Cheng.

LNC, now called Advantech-LNC Technology Co. (研華寶元數控) after the acquisition, has also turned more aggressive recently in robot controllers, which should have lower entry barriers than CNCs, he said.

"We expect Advantech-LNC to repeat its success with CNC in the robot controller space, given Advantech's strong presence and support team in China," Cheng said, adding that Advantech-LNC earned a profit of about NT$22 million in the first half of 2014.

The analyst forecast that Advantech-LNC will generate a more meaningful earnings contribution of about 5 percent for Advantech in 2016, compared with an estimated 1-2 percent in 2014. He gave an "outperform" rating on the stock.

Shares of Advantech rose 1.26 percent to NT$242.0 Tuesday in Taipei. The local share market was closed Wednesday because of a typhoon.

According to estimates from the International Federation of Robotics, 179,000 industrial robots were sold globally in 2013, an increase of 12 percent year-on-year, and the market exceeded US$9 billion for the first time.

China is the biggest robot market in the world with almost 37,000 units sold there last year, the federation's data showed.

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