Estun Automation Earnings: Strong Revenue Growth, but Gross Margin Narrowed

While Estun's June-quarter revenue grew by 47.5% year on year, we are slightly disappointed that its gross margin declined to 32.7%, which is lower than 33.5% in the same period last year and marks the second consecutive quarter of gross margin contraction. We believe this indicates intensifying competition in the industrial automation market in China. Given the tepid economic outlook in the second half of this year, we lower our 2023 revenue estimate to CNY 4,931 million from CNY 5,034 million and our net income estimate to CNY 234 million from CNY 287 million. We keep our fair value estimate at CNY 17. The shares closed 37% above our fair value estimate on Sept. 1. We think the current price has factored in very aggressive growth and margin expectations.