THIS MATERIAL IS A MARKETING COMMUNICATION.
China Robotics & Automation Industry Review
Supply chain tightness remains the key buzzword affecting all automation and robotics companies during 1H22. The ability to manage supply chains whilst being agile was critical for manufacturers during the China lockdown. We continue to believe that Chinese players who are able to demonstrate strong management of local supply chains are likely to gain further market share during such periods of disruption.
Automation demand varied across verticals during the pandemic lockdown
The lockdown heavily disrupted demand for Chinese automation and robotics in April and May, with significant interruptions to logistics and production during that period. In particular, the capital expenditure of small enterprises saw the greatest hit as many suffered from weak cash flows and profitability, which limited their spending interest and spending power. For larger corporate customers, their spending was mostly delayed but not cancelled. Automation solution delivery and revenue recognition were mainly delayed due to logistics disruptions and labor shortages. On the contrary, according to the purchasing managers’ index (PMI) and JMTBA1 data, overall automation demand was fairly resilient and healthy in Europe and the US.
Across end market verticals, we see a divergence in the performance of demand growth. There was generally strong new order and growth momentum in end verticals that benefited from decarbonization. Meanwhile, industries with a higher mix of small enterprises have generally underperformed. Airtac’s May data suggest healthy industry growth (+10%) with demand from the battery (+110% YoY), automobile (+110% YoY), energy and lighting (+110% YoY), and electronics (+25% YoY) markets outperforming relatively.
Supply chain tightness remains the key challenge; benefiting Chinese players during lockdown
Due to unpredictable production and logistics, China’s lockdown worsened the supply chain tightness globally given that China is one of the key production hubs. Hence, many global robotics suppliers’ lead time increases further. The supply chain tightness became the main bottleneck for automation companies to cater to customer demand. Fanuc and Yaskawa Robotics’ lead time got extended further, according to distributor channel checks, and in some cases, they were unable to provide a fixed delivery time.
For automation and robotics brands, chip availability remains a bottleneck with little signs of improvement in the near term. Recent distributor and corporate calls still cited the chip shortages as a key reason for robotics production delay. This is worse for foreign brands with more stringent supply chain management policies. Their customers are also more stringent and could take a longer time to accept new component suppliers. As a result, the industry inventory level is lower than normal.
This tightness benefits select Chinese automation and robotics suppliers due to their much shorter product lead times and more agile supply chain management. Moreover, these Chinese players only have one target market, leading to much better distributor and customer management priority. Unless we see a more certain full-scale reopening, those import substitution benefits are likely to stay for some time.
Anticipating improving China growth but concerned on ex-China growth in 2H22
As we head into 2H22, the base effect will lead to headline figures showing a divergence between China and ex-China growth. Last year, May was the peak for China’s automation delivery. Thus, 2H22 will have an easier comparable. On the contrary, ex-China growth will face a high base effect in 2H22, leading to a moderating YoY growth rate. JMTBA data might turn negative in October this year. Concerns on rate hike impacts on the developed market economy might slow the corporates’ pace of capital spending.
For the upcoming quarters, we should also anticipate some restocking activities in China. The inventory of automation solutions and components was depleted during the lockdown. As manufacturing activity recovers and demand normalizes, we expect the supply chain to gradually restock as a buffer to weather potential disruptions in the future. As such, this could drive a stronger-than-normal demand recovery.
In terms of key end applications, we believe robotics demand will stay resilient in 2H22, benefitting from global automation needs to resolve labor availability issues. Laser application demand could take a longer time to recover following the pandemic. Part of laser demand is for general purposes, with high exposure to small enterprises. These small enterprises will only spend capex when they see improving order trends and profitability. For laboratory testing demand, lower corporate profitability and tighter government budgets could slow demand in 2H22.
Components demand is a relative bright spot. As the order lead time of automation companies remains quite long, they are still digesting the strong order and demand from prior to the pandemic lockdown. As such, the demand for components is still fairly resilient. According to Hiwin, their linear guide / ball screw production lead time remains stable (~3-3.5 months / 4 months now, vs 2-3 months / 5.5 months at the end of 2021).2
Staying Ahead with Mirae Asset’s Latest Insights
1. Japan Machine Tool Builders' Association
2. Source: Hiwin company data, June 2022
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary/.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Hong Kong: It is intended is for Hong Kong investors. Before making any investment decision to invest in the Fund, Investors should read the Fund’s Prospectus and the information for Hong Kong investors (of applicable) of the Fund for details and the risk factors. The individual and Mirae Asset Global Investments (Hong Kong) Limited may hold the individual securities mentioned. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Singapore: It is not intended for general public distribution. The investment is designed for Institutional investors and/or Accredited Investors as defined under the Securities and Futures Act of Singapore. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Monetary Authority of Singapore. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Australia: The information contained in this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempted from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. The contents of this document is prepared by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission.
Swiss investors: This document is intended for Professional Investors only. This is an advertising document. The Swiss Representative is 1741 Fund Solutions AG, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent is Tellco AG, Bahnhofstrasse 4, CH-6431 Schwyz. The Prospectus and the Supplements of the Funds, the KIIDs, the Memorandum and Articles of Association as well as the annual and interim reports of the Company are available free of charge from the Swiss Representative.
UK investors: This document is intended for Professional Investors only. The Company is a Luxembourg registered UCITS, recognised in the UK under section 264 of the Financial Services and Markets Act 2000. Compensation from the UK Financial Services Compensation Scheme will not be available in respect of the Fund. The taxation position affecting UK investors is outlined in the Prospectus. This document has been approved for issue in the United Kingdom by Mirae Asset Global Investments (UK) Ltd, a company incorporated in England & Wales with registered number 06044802, and having its registered office at 4th Floor, 4-6 Royal Exchange Buildings, London EC3V 3NL, United Kingdom. Mirae Asset Global Investments (UK) Ltd. is authorised and regulated by the Financial Conduct Authority with firm reference number 467535.
Copyright 2023. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.