We Initiate Coverage on Hengli Hydraulic With Narrow Moat and CNY 50 Fair Value Estimate

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 34% of revenue in 2022. Excavator demand is highly cyclical and Hengli’s excavator hydraulic cylinder revenue fell by 54% from 2011 to 2015 due to the industry downturn. Since the industry entered another downcycle in mid-2021, we expect Hengli’s excavator hydraulic cylinder revenue to trend lower and bottom in 2025.