Zhongda Lide saved its declining performance and established a subsidiary with USD 36.8 million to enter the Southeast Asian market

Recently, Ningbo Zhongda Lide Intelligent Transmission Co., Ltd. (hereinafter referred to as "Zhongda Lide") issued an announcement stating that the company plans to establish a wholly-owned subsidiary in Singapore, and establish a wholly-owned subsidiary, Thailand Zhongda Lide Intelligent Transmission Manufacturing Co., Ltd. in Thailand through the wholly-owned subsidiary in Singapore, with a total investment of no more than US$36.8 million.

According to the information, the business scope of the above-mentioned Thai company includes the research and development, production, sales and consulting services, import and export of reduction motors and reducers.

Regarding the purpose of this investment, Zhongda Lide said that according to the company's long-term development strategy and actual business needs, the company can make full use of local resources in Thailand by establishing wholly-owned subsidiaries and wholly-owned subsidiaries overseas, enhance the company's competitiveness and profitability, reduce the procurement costs of foreign customers, and better serve Southeast Asian customers and expand the Southeast Asian market. In addition, this investment will also help the company cope with future trade risks, effectively integrate relevant market resources, further expand overseas markets, reduce investment risks, and achieve better economic and social benefits.

It is understood that Zhongda Lide was founded in 1998 and focuses on the research and development, production, sales and service of motor drives, micro motors, precision reducers, robot structures and integrated intelligent execution units. At present, its reducer production capacity is about 100,000 units per year, including planetary reducers, RV reducers and harmonic reducers, among which RV reducers began to be supplied in batches in 2018.

Expanding Southeast Asian market

The primary purpose of Zhongda Lide's establishment of a wholly-owned company overseas is undoubtedly to explore the Southeast Asian market. In recent years, for various reasons, many global manufacturing companies, including China, have begun to relocate their production lines to Southeast Asian countries such as Vietnam and Thailand.

For example, BYD plans to build a factory in Vietnam to produce auto parts, with an estimated investment of more than US$250 million; Czech car brand Skoda also signed a cooperation agreement with TC Motor to enter the Vietnamese market; on March 8, Foxconn announced a total investment of US$60 million in its two subsidiaries in Vietnam. Previously, Apple revealed that it would move its MacBook production line to Vietnam in 2023. By 2025, approximately 20% of iPads and Apple Watches will be produced in Vietnam.

The migration of manufacturing to Southeast Asia will inevitably bring about a large demand for automation applications, which is an opportunity that cannot be missed for mechanical equipment companies. At present, Zhongda Lide has formed a product architecture of integrated reducer + motor + drive intelligent execution unit around the core components of robots, which is widely used in machine tools, CNC equipment, industrial robots , intelligent logistics, new energy and other industries.

At the same time, the establishment of an overseas subsidiary may also be a strategic transformation attempt by Zhongda Li to find new profit points. The words of Zhongda Li Chairman Cen Guojian, "If you don't transform and upgrade, you will die," are still echoing.

Although Zhongda Lide's performance has been growing in recent years, the growth rate is not high, and even negative growth has occurred. From 2019 to 2021, its revenue was 676 million, 761 million, and 953 million yuan respectively, and its net profit attributable to the parent was 53 million, 70 million, and 81 million yuan respectively; and the third quarter financial report of 2022 showed that total revenue was 669 million yuan, a year-on-year decrease of 9.84%, and net profit attributable to the parent was 42.6119 million yuan, a year-on-year decrease of 38.33%. The performance of various data indicators was unsatisfactory.

At the same time, Zhongda Li's gross profit margin has also shown a downward trend. From 2019 to 2021, the gross profit margins were 28.7%, 26.9% and 26.2% respectively. As of the third quarter of 2022, the gross profit margin was only 23.61%. As a high-end parts company, this gross profit margin is undoubtedly quite low.

Previously, Zhongda Lide also stated that the company's reducer product structure has been in the process of adjustment in recent years, and precision reducers are still in the stage of continuous expansion and increase in production, with no obvious economies of scale. In addition, raw material prices and labor costs have risen significantly in the past two years, which has led to a decline in the company's gross profit margin to a certain extent.

In general, Zhongda Lide's performance in recent years has been mediocre, with no improvement in revenue and profits, and even negative growth last year. It is also difficult to increase gross profit margin, and the future prospects are not optimistic. This time, the company plans to enter the overseas market, probably out of consideration to save its performance.

The demand for reducers continues to grow

Robots are known as "the jewel in the crown of manufacturing". Their research and development, manufacturing and application are important indicators of a country's scientific and technological innovation and high-end manufacturing level. With the advancement of intelligent manufacturing, the production and sales of robots will also increase. As one of the core components of industrial robots, precision reducers will have huge market demand in the future.

Data shows that China's industrial robot production reached 443,100 sets in 2022, a year-on-year increase of 21.1%, and sales exceeded 300,000 units. Now that the epidemic has been fully lifted, various manufacturing companies have a strong desire to use industrial robots. It is estimated that China's industrial robot production will reach 550,000 units in 2023.

The continuous growth in the production and sales of industrial robots has naturally led to an increasing demand for reducers. A simple calculation shows that each industrial robot requires an average of 5 reducers. If the output reaches 550,000 units, 2.75 million reducers will be needed. The market is currently in a state of supply exceeding demand.

As a precision component, reducers have very high technical barriers. Currently, most of the market is monopolized by Japanese companies. The market share of Chinese independent brands is relatively low, only around 30%. For example, the localization rate of high-end RV reducers used in heavy-duty robots is only around 10%. There is still a lot of room for domestic substitution in the future.

In recent years, the production capacity and level of my country's reducer companies have continued to improve, breaking the monopoly of Japanese companies in the domestic market to a certain extent. For example, Zhongda Lide's RV reducer has been used in large quantities. In addition, there are Green Harmonic, Lai Fu Harmonic, Huandong Technology, Qinchuan Machine Tool, etc. These companies have occupied a certain market share in China, and the localization rate is expected to increase steadily.