A recovery in the industrial automation sector is likely to occur later than expected due to the COVID-19 pandemic, Yuanta Securities Investment Consulting Co (元大投顧) said in a report, reversing its prediction that an upcycle would begin around the middle of this year.
“A few applications are forming another industrial automation upcycle ... although the upcycle will arrive later than expected owing to COVID-19,” Yuanta analysts led by Kenny Chen (陳景文) said in a note on Thursday last week.
However, if the effects of the outbreak continue, the second half is likely to slow downstream clients’ destocking demand and put pressure on the average selling prices of component makers, Chen said.
Based on the monthly revenues that component makers released this month, linear-motion component suppliers — such as Hiwin Technologies Co (上銀科技) and TBI Motion Technology Co (全球傳動) — last month performed better than pneumatic parts makers such as Airtac International Group (亞德客) and Taiwan Chelic Corp Ltd (台灣氣立).
“For the near term, linear guide manufacturers are receiving more rush orders compared with the fourth quarter of 2019, thanks to distributors restocking in China, and we believe this will help mitigate the impact of weak demand in Europe,” Chen said.
“For the medium to longer term, we believe the sector’s upcycle should arrive in about the late third quarter of 2020 (versus expectations of mid-2020 previously), after a 23-month recession that began in October in 2018,” he said, citing major catalysts such as 5G infrastructure construction, investment by semiconductor firms and capital spending among printed circuit board manufacturers.
Among major industrial automation players, Hiwin is expected to report quarterly increases in revenue from next quarter. Its revenue in the second half of the year is forecast to grow 18 percent year-on-year, compared with an expected 21 percent decline in the first half, Chen said.
Hiwin on Wednesday reported revenue for the fourth quarter last year decreased 39.62 percent year-on-year to NT$4.01 billion (US$132.62 million). The smaller sales scale, pricing pressure and unfavorable foreign exchange rates caused the company’s net income to decline 95.58 percent annually to NT$38.44 million, or earnings per share of NT$0.13.
For the whole of last year, its revenue dropped 31.1 percent annually to NT$20.21 billion, while net income decreased 65 percent to NT$1.87 billion, or earnings per share of NT$6.03.
Due to delayed demand recovery as the virus spread from China to the rest of the world, Hiwin’s earnings growth is not expected to turn positive until the third quarter, rather than in the second quarter as Yuanta had previously estimated, Chen said.
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