Shenzhen Inovance Technology Co.,Ltd (300124) Earnings Call Transcript & Summary

[Audio Gap] You will be muted. Now -- give you announcement. For this conference, we are servicing the invited participants. The PowerPoints, audios and minutes are for internal use do not disseminate. For Inovance, we do not authorize any media to disseminate the content. Without the authorization, this is regarded as infringement. We are going to hold everyone accountable of doing so. Inovance is not responsible for any losses caused by dissemination and distribution. Investment is risky. Please be cautious. Before the start, I would like to remind every investor that after the presentation, we're going to have a Q&A section. Now please allow me to give you the introduction about the management, the Board and Director and Board Secretary, Mr. Song Junen. Now I give the floor to Mr. Song.

Dear friends from the investment community, good afternoon. Welcome, everyone, to attend the results announcement for Inovance 2025 Q3. We are going to have two parts. The first one is that we are going to give introduction, briefly about the performance of the top 3 quarters, and then we're going to have Q&A afterwards. While we are introducing -- or before introducing the performance of the top 3 quarters, what I would like to do is to give you a brief overview about the business that we have. For this year, approximately, we had a revenue of exceeding CNY 40 billion. Actually, we are always thinking about one issue that we have the scale of the volume of CNY 40 billion and more of Inovance, how do we have a very sustainable and good growth, where are our further spaces for growth. This is something that we are always discussing in the management. In the second half of 2024, all the way until 2025, we were sorting out the businesses that we had. What we have been seeing is that at the current stage, we do have the dual king businesses of Industrial Automation and Inovance Automotive that are having a very good leadership positioning in China. We are actively thinking that for these two businesses and sectors, whether or not they still could be regarded as the golden tracks, and of course, what are the future potential for the further growth. Of course, I think that for the dual king, which is Industrial Automation and Inovance Automotive, and the tracks that they are on are pretty good, and we should still define them as golden tracks. We all know that the Industrial Automation is the core part of smart manufacturing. Of course, for smart manufacturing on top of Industrial Automation, we're going to have also digitization and also integrating with artificial intelligence. So in that case, we have infinite possibilities for the future development of Industrial Automation. In the future, the smart manufacturing should be definitely defined as the integration of automation software and digital integration. This is what we believe that what Inovance is actually doing, and this is what we believe as opportunities for us in the future. Second point is that for the Industrial Automation of Inovance, we are going to focus on overseas market in the future, which we've been talking to you a lot about this because the overall size of the overseas business is 2 to 3x larger than of China, and we are still having a very low market share in overseas. We have met difficulties while exploring our business abroad, but this is something that we have to be insisting on. We have to do the overseas market well in order to become a truly globalized company. So we believe that this is actually the industry that we are in, which is a golden industry. Second point is that, for Industrial Automation, this is the core part of smart manufacturing. For every customer, they have requirements and demands of a lot of products of Industrial Automation. So the features are that there are many of them, and each of them are interconnected. So we had three major components in the past, inverter, servo and controlling system. We are extending that to sensors and precision machinery and all the other relevant products like pneumatics as well. So -- because we are actually sharing the same customer base, we could use the same production line for all of the customers' production lines as well. So we do have a lot of opportunities for providing solutions or products. Based on the reasons that I have mentioned above and the current stage the industry -- that Industrial Automation is in still could be regarded as a golden one, and we have a lot of potential for further growth. Point number two I have to stress is, another important business, which is Inovance Automotive that we are having, which is New Energy Vehicles. For Inovance Automotive, we have successfully IPO-ed and further lay out our strategic leadership positioning here in China for electric drive and electric control. So in the future, for New Energy Vehicle, the development trend would be ADAS or intelligent vehicles. Whether intelligent vehicle will be an opportunity for Inovance Automotive? The answer is yes. For automated vehicle, as for the mechanical response, there is a very high requirement. So for all the mechanical parts, we are seeing electrification going on. For Inovance automotive, we are actually working on the business of Intelligent Chassis, without which we cannot have a very good development for the autonomous driving business. So while we have X-axis, Y-axis and Z-axis that are electrified, we have a unique advantage for us if we have Intelligent Chassis, which is going to be bringing a lot of potential for growth. There is a heavy competition going on for New Energy Vehicle industry. But in the future, New Energy Vehicle is going to be more intelligent. And on top of the big mega and micro-electric components, while having suspension system and wire control, we are going to have a lot of opportunities for us to grow for Inovance Automotive business. And another one should be overseas key accounts. For Inovance Automotive, well, we started business with electro control, electromotor system, while at the same time, we're expanding the overseas market with these categories. With years, we have been seeing a very good growth of our key account business from overseas, which is going to be offsetting the heavy competitiveness here in China. While analyzing upon that, Industrial Automation and New Energy Vehicle businesses are quite large for Inovance, and we are already becoming the kings in these two areas, but still there are infinite possibilities for us to catch upon in the future. So we should regard these two businesses as the golden businesses, which is the current one. Second point, big point I would like to say is that on top of these two key businesses, we have to catch the momentum of the growth for the technological development, and demand development in the near future, which one or which industries are going to be better in the future. You might be actually associate Industrial Robots all the way to Intelligent Robots. Everybody calls this Humanoid Robot, but I think that we'd rather call this Intelligent Robot because actually, there are different form factors, not necessarily in the human shape. So for intelligent robotic business, this is a very big industry. And at the same time, we have built a very solid foundation for this business development in the future. So for Inovance, this is also going to be the business that we have to be working on. Second point, the new growth curves are that we're talking about the AI computing power or the dual carbon emission reduction. There are a lot of imaginations for the business of energy related. So because of these two reasons, Inovance has been working quite actively on the area of Intelligent Robots and Digital Energy Management businesses. At the same time, we have been doing some restructuring of our organization. That is to say we're going to form the business unit of Intelligent Robots and business unit of Digital Energy Management so that we are going to really working on a new organizational structure to be really nimble in catching the opportunities. So this is actually my preface talk that how we're going to find sustainable growth opportunities on the basis of CNY 40 billion plus revenue that we already had. And we have to catch the opportunity of the macro environment and really have a big growth in the future, except for the Industrial Automation and New Energy Vehicle businesses that we already had, we hope that we can have extra resources to focus on Intelligent Robots and Digital Energy Management businesses. So for Inovance, this is exactly we've been quite active on and should be regarded them as opportunities for business in the future. All right. Next, I would like to give you a sharing about the performance from the first quarter to the third quarter of 2025. For top 3 quarters, the overall revenue -- operating revenue, CNY 31.7 billion, increasing by 25%, against the heavy competition, I still believe that there are actually some of the accidental events influencing. So having 25% of the growth would be good enough because of the business of New Energy Vehicle and business growth of Industrial Automation. For China market, it is still quite competitive. But because of our very good brand power and our leadership positioning and because of our competitive edges on the products and solutions, we've been achieving a lot for the top 3 quarters. The second point would be the net profit attributable to shareholders, CNY 4.3 billion, increasing by 27%. So for 27% year-on-year increase, there are 3 attributes. The first one is the very good revenue growth, 25%. And also on top of very good top line growth for the top 3 quarters, we had also very good control on the expenditures. So the three expenditures' growth rate actually was lower than that of the revenue growth. And also, further of all, for the nonrecurring items, we actually had also contributed some of the parts to this. So the net profit attributable to the parent shareholders increased by 27%. CNY 3.9 billion of NPAT, excluding noncurrent items, increasing by 24% year-on-year. So let's take a look at the operating cash flow, CNY 3.9 billion. Overall speaking, for CNY 4.3 billion for the net profit attributable to the parent shareholders is quite matching that. Even if we had a competitive environment because of our ability to catch opportunities, we had a very good management of our company. Gross margin for the top 3 quarters, 29.27%, decreased by 1 percentage point. This is due to the changes of our product structure. You can see that for the overall automotive business, this is actually increasing the contribution ratio to the overall revenue, which had a very low gross margin. So this has caused the overall downturn of the gross margin as a whole for the company. Actually, for the top 3 quarters, for the General Automation, Industrial Automation, the overall gross margin was pretty good. And then the expenditures or expenses for 3 -- expenses, selling, administrative, financial and R&D expenses for the top 3 quarters, CNY 5.3 billion, increasing by about 19% or 20% year-on-year. And the biggest growth was attributable to the R&D expenses with CNY 3 billion spent on R&D, increasing by 36% on the overall basis, and the percentage of R&D account to the revenue is 9.5%. So this particular high percentage of revenue goes to the R&D is going to be a very important driver for us to have a continuous growth. For R&D business, so we are focusing on several areas. The first one is about the software. You all know that not long ago, we have been publishing some softwares and IFC products and some of the digital products as well as the Industrial Software-related products, which need a lot of investments. And second is Humanoid Robots, which we've been quite active in promoting some components and parts. And third is about the industrial -- I mean, Intelligent Chassis of automotive, which received a lot of R&D expenditures. And exactly because of those high R&D expenses and made Inovance be more confident in our future development. Okay. Now let's take a look at quarter 3 specifically. In between July to September, operating revenue, CNY 11.2 billion, 21% year-on-year growth. And our Industrial Automation growth has been pretty fast, but slowing down a little bit there with our automotive business because of the fierce competition and the pressure on price. So overall, our third quarter growth in operating revenue is slightly lower than that of the previous several quarters. And then net profit attributable to parent shareholders, only 4% growth year-on-year. In between quarter 1 to quarter 3, that is CNY 4.3 billion, a 27% growth year-on-year. And you can see this quarter 3, only 4% growth year-on-year is a big dragging force of the total of quarter 1, 2 3, mainly due to the automotive business slowing down or slipping there caused our net profit in quarter 3 to be affected. And actually, our operation with Industrial Automation business blocks have been further stabilized with increased efficiency, also growth in gross margin, high-margin PLCs, servo products, et cetera. They're growing pretty well and made the overall gross margin growing there, but still not enough to compensate for the dragging from automotive businesses. NPATs, CNY 1.2 billion, 14% growth year-on-year compared to last year's third quarter. Last year, in the third quarter, we had a plant and the workshop moving from Suzhou, and there was a government subsidy of CNY 620 million from the government, and we don't have that this year. And the expenses, CNY 1.8 billion and of which the growth in R&D expenses is really the highest. We invested more than CNY 1 billion there. And then let's take a look at the industrial operation. General Automation, CNY 1.31 billion with a growth of 20%. And overall, we can see this is a high-quality business, consider the scale, consider the revenue and the gross margin and growth rate, they're all pretty decent. And General Automation business growth is like the stabilizer of our whole group's business. NEV, this is from the group's caliber, not of our Inovance Automotive. You see here the revenue is CNY 1.44 billion, 39% higher. Intelligent elevator, CNY 3.6 billion remained flat. And now let's take a look at General Automation. We believe the third quarter, it's CNY 4.3 billion with a 25% growth year-on-year. Indeed, the number of orders in quarter 3 kept on growing. We know that we had more pressure there with quarter 2 due to the trade war, a lot of downstream investment had made pauses. But in June, July, August and September, our order recovery from quarter 2 were pretty well, and it kept on growing, and caused our Q3 General Automation revenue to be pretty nice there. Another reason is the high-margin products, including servo and PLCs have got pretty great results, and increase the overall margin of General Automation. And in downstream of General Automation, some bigger industries started to show positive growth, not just lithiums and logistics or 3C, automotives. Some of those have got a better first half, but there are some others who had pretty poor first half year performance, like process industry, semiconductors, et cetera. They started to recover somehow in quarter 3, which also contributed to our third quarter order. Another thing about General Automation in quarter 3 is that we had got some organizational chart adjustment, we established a global business group. And that marks -- our business is now extended from the Chinese market to the whole world. And basically, there are two ways of doing so. One is to partner up with other partners, while our downstream customers bring their products overseas with the participation of our services and products. Another is industry-specific globalization, securing accounts in some sectors. And those two together formed our global transformation in General Automation business of our group. That's what we have done in quarter 3, a pretty major change. As I said, CNY 13.1 billion for the first 3 quarters with a 20% growth, and the quarter 3 specifically, CNY 4.3 billion, 25% growth. With general purpose servo, the revenue was CNY 5.3 billion; PLC and HMI, CNY 1.3 billion; Industrial Robots, CNY 900 million; AC drive, CNY 4.1 billion. Next, let's say, NEV, New Energy Vehicles. The first 3 quarters, total revenue was CNY 14.4 billion, 39% growth year-on-year. Quarter 3, specifically CNY 5.3 billion, 22% growth. The market share demonstrated steady growth and a more balanced customer portfolio. We now have more customers surpassing the value threshold of CNY 1 billion. And we've got more than 20 new overseas project nominations, nearly 60 new project nominations in these 3 quarters, which are the main driving force of our NEV business in the past 3 quarters. And our Generation-6 product -- platform, we researched proceeding as scheduled, about to enter a sample development stage, including our inverter motor and E-powertrains, et cetera. The fourth point is that with our smart chassis business are rapidly growing, including from Inovance Automotive. We established that smart chassis -- Intelligent Chassis business -- business group was established -- that business department, and the suspension products entered the B sample stage, got nominated by customer. And odd volume orders from European customers drive overseas revenue growth exceeding [ 50% ] year-on-year. Next, let's see Intelligent Elevator. First 3 quarters remained flat, CNY 3.6 billion. Basically, aren't any new strategies there, just to implement to the existing one, which is to serve well with our key account domestically. We have two hard challenges, and we have successfully started to overcome those. And those two elevator customers started working with us after all those years of communication and a long-term negotiation, finally. And another is that in the overseas market business with Intelligent Elevators, we are having some steady growth in Europe, Southeast Asia, India. Another is aftermarket business, we have had a steady growth. Okay. Now I would like to talk two things related to our future business. One is Intelligent Robots. As I said, we are about to have another round of organizational charts adjustments. And I've just talked to the future head of this new department our Intelligent Robots would include the combination of Industrial Robots, Computer Vision and AI. So we believe naming it Intelligent Robots would be more appropriate, and we are to establish that organization. At the end of the Industrial Expo, we have announced our core components for the Intelligent Humanoid Robots, including the frameless motor, high-power density drive and the high-density sensor and the planetary screw rod product. And also, we launched several modules, including the linear actuator, the planetary rotary actuator as well as the 7-axis bionic arm product. Well, the announcing of those products are exactly because we've been communicating with both domestic and overseas customers in the process of R&D of those products. And now that they have been announced, we are continuing our communication in order to put those into their application as soon as possible. And we, Inovance, by announcing those products are leveraging our Industrial Robots and components advantages, our legacy. We have that reliability and mass scale manufacturing capability advantages. We can really meet the demand of Humanoid. And right now, it is mostly encountered as problems in the whole industry that they have very small scale, and very high temperature rises when those components and the modules are in operation. So we launched into the market smaller form factor, with low temperature rise products, with more stable manufacturability that we have, and make those more flexible, smaller in size and safer to use. And based upon our understanding of those components products as well as industrial scenarios, we also developed some embedded solutions for industrial scenarios. And that is another strategy we have with humanoid or intelligent robots as we named it. And another thing is that we announced some more software-side thing at the Industrial Expo by the end of September. If you are interested, you can log into our WeChat public account to watch some of the videos with more introductions there. And let me here reemphasize a few things. In the future, Industrial Software plus digital platform plus automation software, it's definitely going to be the definition of those two. Our IF is an intelligent software, and we launched some new functions, including for installations, et cetera, in those Industrial Softwares. And for all those years, we've been accumulating on our digital platform, InoCube, and we are going to really align those platforms and connect them together in order to really meet the demand of our downstream customers. And apart from these, we also have two other very fundamental things we can leverage. One is AI. We announced our IFG, Inovance Factory Genius, an AI brain for industrial scenarios. You could watch some video, search for it and get to know more. Another is our wireless revolution. We believe the wires and harnesses in industrial scenarios are also a pain point because they are troublesome and hard to maintain. Wireless revolution is another direction as well. So we launched InoAir, wireless revolution. And these are some of the things we have done in terms of Smart Manufacturing, Industrial Automation and Industrial Robots. Okay. So that was the first 3 quarter performance review of Inovance. Thank you all very much. All right. Without further ado, we're going to kick off the Q&A session.

And this is the English line. [Operator Instructions] Now I give the floor to the first investor. Please identify yourself first. Thank you.

Hello, everyone. I am [indiscernible] in charge of the mechanics. And I have several parts. The first one is about the Industrial Automation business. As you have mentioned in the PowerPoint that for most of the downstream industries, in recent years, we've been seeing a very good positive growth for the order placement. Does that reflect the overall better situation for the manufacturing industry as a whole in China? I am curious to know that how do you think about the future trend of the manufacturing in terms of the overall demand? Second question is that from a third-party statistics, we could see that the market share of Inovance in China is increasing continuously. We would like to understand for the downstream industries, which industries are enjoying the most rapid growth of the market share? Are you taking shares from overseas companies or you're actually taking the shares from Chinese companies in China? And next question is about the overseas business of General Automation. You have mentioned that this is going to be your major focus for the future. Like the growing global business of manufacturing industry, China brings a lot of opportunities to you. I would like to know that in terms of the investments, in terms of personnel investment or resources investment in overseas, what is it like? And what are the core strategies that you are implementing at the same time? And my third question is that, as you have mentioned that for the Humanoid Robots in the Industrial Expo, you've been actually demonstrating a lot of new products that you had. Also, in the past, in terms of General Automation, especially Industrial Automation, you had a very good strategy from core components to a total solution provider. So we would like to know that for Humanoid Robots business, what is your future positioning? Are you going to be the provider of a core component or the whole robot itself? And which industries that you might be targeting, or you're just doing a general provision of those products? These are my three questions.

All right. Thank you very much, [indiscernible], for the wonderful three questions. The first one is that talking about the downstream industries of Industrial Automation, actually, second quarter business, I've already said that. Actually, in the downstream industries, the overall demand was impacted negatively by the tariff and the trade war. So we had a weak performance of the demand in Q2. So overall speaking, we do not have a lot of order placement increase. But in Q3, as I have already elucidated, that in most of the industries, for instance, for the company -- industries that we are managing on the group, 45, only 4 industries that had negative growth. The rest of 30-plus industries and sectors experienced the positive growth. So from that perspective, we do see a recovery and rebound of some of the industries. As I have already said that some of the industries negatively grew in the first half of the year, but actually recovered to a positive growth track and with a very good and sound growth rate. So for process automation, for instance, papermaking, chemistry and chemical industry and refinery, we had a positive growth. So for textile and silicon, of course, silicon had a lot of decrease in the past and so does the textile, but they also enjoyed positive growth with a fair enough growth rate in Q3 again. So for these four mentioned industries, they had a very good recovery. So I think that the attributes are that -- first of all, our organic growth and also recovery of the downstream industries. If you ask me to give you an outlook for the future, to Q4 and 2026, I think that this particular growth momentum of the top 3 quarters will prevail. But whether it is going to be as high as that of the Q3, that is still a question, but we are going to continue the momentum of the top 3 quarters as a whole. Second question about the market share improvement: where we're getting the additional shares? Actually, according to our statistics, right, it's not the end of the year. So we don't have a full year data. But for some of the industries, I could share with you some colors. First is that about the automotive equipment. So we had a very low market share in the past, like from the component manufacturing lines to the whole lines, we had a very low market share in the past. But now we do have a designated production line for the automotive components, and we have a solution center. We started the business from the PLC as the major product and develop all the products from control all the way to the general ones. So we had a very good growth. But most of the market shares were actually from the overseas companies. But for semiconductor business, we had a very good growth in Q3, even if we had a headwind in the top 2 quarters in the first half of the year. So as you all know, that for this particular kind of a very good integrated manufacturing process is actually accelerating the progress and also in the front segments, especially. So front segments had been a very good advantage for us in the recent quarters. And we used to focus a lot on the rare components or segments. But now we're taking share from overseas companies as well. For the lithium battery industry, in the 2 years, in the past, we had a decrease of the business, but we had a very good recovery starting from last year until as of now. This brings with us a very good positive growth in the third quarter. And for logistics equipment, this is going to be another highlight of this year. I think in most of the cases, we're taking market share from overseas companies. There is a long tail effect. But of course, one thing I have to say is that we are focusing on different regional markets that are having a very good growth. On an overall basis, the regional market about -- like overall speaking, 30% of the growth. So different geographic locations had on average about 30% of the growth. And most of them enjoy from a long tail effect, but it's very difficult to give you statistics about it as a whole. So for Inovance, at the end of the day, I think that most of the market shares additionally we were taking from the overseas companies, and we've been finding some solutions. And for instance, to increase our ability to provide solutions so that we are able to overcome some of the difficulties and overcome the dominancy of certain areas by overseas companies. Second point is about the overseas market expansion. When we used to dispatch a lot of people to overseas, but now we do have locally hired staff of about 700 working in local other overseas countries, which is a great number already. So we've been investing a lot in recruiting staff from local in overseas. And next one is about the R&D expenditures. Actually, as you all know, that especially for Europe and North America as a market, which they enjoy a lot of high bar for the business specs -- I mean, the product specs and the quality. So in order to support expansion to these markets, we have been emphasizing more on the R&D expenses and also making research and development of those products that are having the compliance with the European or American standards. So a lot of R&D expenditures on this part. Another one is about the factories and plants, not only for automotive business. Automotive business plant is going to be operational in Thailand and Hungary. And for Industrial Automation, we've been also having local plants working in Hungary and North America. And at the same time, from the strategy standpoint, I always stated in the past that whether or not Inovance is going to be truly globalized is dependent on the market share or I mean, the share of the business contribution from overseas and the number of key accounts from overseas that we had against the total. So investment and mergers and acquisitions, still, we have a lot of room to further improve. And we are actually quite actively on finding the subjects to invest or making M&A. So for R&D, we are making the product that standardized as the quality requirements of North America and Europe, and we've been expanding the production bases in overseas as well. So in terms of investment and M&A opportunities, we're still trying to find the good quality subject. So I believe that definitely overseas market is going to become a very important strategic focus for us -- for our regional strategy. Humanoid Robots, the third question, you all know about us that in 2016 or before 2016, we were very difficult in doing the robot business, and we were selling flour, but now we are selling breads made out of the flour. So whether we want to be a sole kind of a provider of component or the. So we have several steps. First is that, of course, we have to build the competitive edges among the core components and parts of robots. If we can't do this, I think that we're going to say sorry to the robot and humanoid robots industry in China. So we have to be successful and leverage our channel advantage -- and supply chain advantage. At the same time, we hope that we're going to be more innovative in exploring the businesses. Second is the whole robot itself, but this is pretty much based on Industrial Robots. But for the pan, like humanoid robot as a form factor, this is not something that we are good at now. But if you're talking about Industrial Robot or actually Industrial Solution, we do not call them Humanoid Robot, but we call them Industrial Robot and Intelligent Robot. We're going to make, for instance, the intelligent dual arm with a lot of degree of freedom in our product as a solution. Probably it's different from a general kind of a humanoid robot. You could call it designated robot, but these are actually developed designated to certain industrial scenarios. And for the general humanoid robot, more often, we are going to empower Chinese companies to manufacture or some overseas company to manufacture for us. All right, pretty much the answers. Thank you, [indiscernible].

Right. In the past, in the General Automation, you had a very good successful story. And I truly believe that in the globalization and in the Humanoid Robots businesses, you are going to become a continuous leader and wish a better future.

Thank you for this wish.

Now I would like to give the floor to the next investor. And please, first of all, identify yourself. Thank you.

Mr. Song, this is [indiscernible] Securities. I have several questions. The first one is that I would like to know that for Humanoid Robots business, probably you had products in September. And what is the strategy? I think that this particular strategy is pretty much matching your advantages. So I would like to know that what were the feedbacks from the customers towards your strategies? And what are those targeted customers? How do you think about the definition of targeted customers for this business? And when are we going to have a very visible achievement and good outcome? Second question is that I heard that you are going to have a business unit for Intelligent Robots. What is the overall planning in terms of staffing and something else? Could you actually expand on that topic? This is my first question, which is about the Industrial Robots. And second is, as you mentioned, another strategic business is Energy Management and for Intelligent Energy Management or Digital Energy Management, you were doing this already in the past, but probably did not attach great importance in the past, but now you are giving more resources to Digital Energy Management. I would like to understand the overall plan in the future for -- you were manufacturing PCS for ESS and for C&I energy storage or some utility energy storage, you've been doing ODM business. But overall speaking, I think that the overall market was not responding that quite well and giving you positive feedback, probably related to less investment on this in the past. So I would like to understand that whether you are having some strategic changes or any changes on your investment portfolio? And my third question would be Inovance Automotive. In the third quarter, temporarily, it performed relatively weaker. But as you talked about its future targets, it's still quite ambitious. So could you tell us about your outlook of that automotive parts, the NEV business' revenue growth forecast and also how overseas part for that business is currently standing at and tell us more about it, please?

Okay. Thank you, [indiscernible]. Well, your first question, Humanoid and Intelligent Robots. Well, after we announced those parts and components and quite a lot of potential customers came to us. And we can say there are some orders already placed. A customer acquired and procured our parts and components, yet still for most of the potential customers, we are still now talking -- just talking and communicating. And most of these customers are like humanoid manufacturers and brands, both domestically and overseas and more tangible in terms of placing orders or mass production, well, not many. As I said, only one order been placed and others are still negotiating. But the overall feedback had been very positive because parts and components from Inovance, announced at the Industrial Expo, be it technology-wise or service and performance and product price and quality control, et cetera, all those aspects, people just place trust in us. And by adjusting our organizational chart, we would combine somewhat of the Industrial Robots, Computer Vision and AI, et cetera, together. In terms of the resources budget and headcount budget for it, we are still now in the process of planning for that. We've already gone through a prescreening of the managerial staff. So the management of that Intelligent Robots department will be determined soon and more detailed plans of the resources as well as the headcounts, talent teams would be decided by that management team once the management team is fully confirmed and announced. So I'm not at liberty to talk more about it for now. But there's one thing I can say. Looking into the global world, intelligent manufacturing plus digitalization is definitely what we can have in the future. You can see that from Siemens products and solutions as well. And for our NEVs, smart chassis would really be a big part in the future. And thirdly, humanoid development will bring a lot of new opportunities, which are quite large, huge scale. And now that we have been planning ourselves and preparing ourselves for all those three, we can say that this is probably one of our most important historical product strategy. We've already had [ drill case ], as you see on my first slide. And now Intelligent Robots will become our potential third king. It would be a testament to test and show, testify whether we could have that flexibility and make strategical shifts when needed, we definitely would put our group's effort into it. And the reason we want to change the organizational chart a bit is because we want to invite someone who understands that new technology, who's able to do strategic things around it. And the management team are yet to be announced. I cannot disclose more at this moment. Second thing about Digital Energy Management or energy storage. Well, yes, if we see our energy sector only about Energy Storage, then we would say Energy Storage overseas is still pretty good, but not so overseas -- not so domestically. Domestically, the price war, the rat race is just too much. Several listed companies entered the field of integration of energy storage and then find it too cheap and they just simply withdraw. And the reason we continue to talk about the Digital Energy Management, you can actually find that, I never mentioned Energy Storage anymore. I only say Digital Energy Management. Energy Storage would only be a module, a product within that system. To change that, it means we're not going to be focusing on Energy Storage solely. Well, our product still has the advantage, including our understanding in electric -- electronics and the transmission technology, communications, et cetera. We still have that advantage. That is for sure. And our overseas Energy Storage business are still going to further develop either through our own channels or through dealers. But domestically, we would like to focus a bit more on a bigger picture, which is the smart energy management -- Digital Energy Management based upon the dual carbon strategy, based upon the energy structure shift as well as digitalization empowerment to those scenarios. We want to achieve some new things and build new business models, new business and new products in those regards, which is why also we are now making adjustments to that, haven't finished yet. We've selected a lead person and about to formulate a team. Like I said in the beginning, this afternoon, we now have several big business departments, Industrial Automation, Global Industrial Automation BG, Global Elevator BG and Inovance Automotive and the two newly added -- to be added, one is Intelligent Robots, another is Digital Energy Management. So these two upcoming new business departments are now being planned and currently under adjustments. And later on, once they are officially formulated, we can have further discussions to say whether they are in a good shape or not. And then thirdly, with our NEV business, even though the profit and revenue, both haven't grown a lot in the third quarter, but we see from January to September, overall still pretty good. We say there's that anti-involution campaign going on from the central government. But as I talked to some insiders in the automotive industry, they say it's the second half, and the involution is still going on, sometimes even fiercer. And we probably have to wait until the end of it. And for us, we simply just keep our market position. In the third quarter, we do see some of our customers haven't sold many of their cars and caused some effect to our orders as well. But to achieve the overall whole year target, it's not going to be problematic. 30% revenue growth year-on-year, that is our annual target, which is not problematic. And secondly, with our overseas business ratio among our NEV business, you, of course, would like to pay attention to the future development space for Inovance Automotive. Overseas is quite important because the gross margin there or the rational behavior of customers there would also be better than that of the customers here. So overseas are quite important to our Inovance Automotive. From January to September, overall growth there had been 50% from our overseas revenue. And of course, we do have multiple tiers of customers, not just selling our power supplies, but also the power drives and the powertrain assembly, the structure portfolio is getting more completed. And another future growth point for Inovance Automotive would be switching towards Intelligent Chassis. Now we've already got some suspension nomination project, and wire controlling will come soon, probably in the future. And in the entire automotive industry, we -- Inovance Automotive will definitely have a lot of advantages there. Our motor, our control, our drive actuators with smart suspension on those premium vehicles, those suspensions are always -- requires very rapid responses from motors and actuators, probably faster than the other actuators you have ever seen on vehicles. And they must operate in a very synchronized way. So Intelligent Chassis, including wire controlled chassis and suspension would become a big advantage of Inovance Automotive. And the third point to say about that is that we continue to optimize our key account structure for Inovance Automotive despite the involution rat race environment. Now with our passenger vehicles, New Energy brands accounted for 50%, and traditional OEM accounted for 40% of our business and overseas, around 8% to 9%. Of course, we hope to raise our overseas business ratio to 20% to 30%. That is our target. Thank you. Thank you, [indiscernible], for your questions.

Thank you, Mr. Song, for answering those. I do agree with Inovance and Intelligent Robots, you have a lot of space. And you mentioned you are making some adjustments with the Digital Energy Management, even though we could only see some Energy Storage businesses. And probably you're going to have something new to bring to us, and I do hope so. And I wish Inovance have more business space to further tap into that in the future.

Next, 5006, please state your name and institution before asking your question, please.

Hello, Mr. Song, I am from [indiscernible] Securities. I am [indiscernible]. I have two questions for you. One is a follow-up question with Inovance Automotive because this quarter, in quarter 3, I mean, really, it slowed down. So you mentioned it's basically because of one sluggish customer. And I want to ask, do you see the possibility of them continue doing that? I mean, looking at your current nominations and orders, it seems the trend is still uncertain. The whole market really do have a strong demand for those products. And the second question, you said overseas business ratio, you wish to continue to increase. But next year, in terms of policy and the subsidies, there's going to be the exiting -- or to some degree of that in the domestic market, do you foresee some slowing down for the whole automotive industry and cause some problems to your Inovance Automotive business growth next year?

Well, first is that -- first, the reason for our third quarter business is due to some key accounts slowing down their pace with our orders. And the next part, we would like to talk about the Inovance Automotive autonomous management. Inovance Automotive's largest competitor would be the OEMs trying to make those products on their own instead of buying from us. That is an unavoidable topic. However, we do have a very clear notion. Even if they do that, they wouldn't do it 100%. I mean, in most cases, at least 50% to 70% of those portfolio is still going to be handed into a third-party enterprise and third-party supplier. And as long as we can capture 50% to 70% of market share, that would be already big enough chunk for us. That's how big the market is. And secondly, even if the OEMs try to make those products on their own, we offer customizations of the stators, the rotors and other process modules, et cetera. Now some OEMs said they do the powertrain DIY on their own, but actually the solution was provided by us. Well, we cannot stop OEMs to make their own systems, powertrain systems, but we can try our best to let them use our products. Yes, as I said, that's one of our largest competitor, but we do have ways to respond to that. After so many years of development on the overall basis, for Inovance Automotive, we've been dealing this quite well, and we've been seeing a very steady progress of our growth rate. The decrease happening in Q3 was not attributable to the self and in-house manufacturing of our customers, but because of the poor sales. So we had a fluctuation of our order placement. Second point is that, in the longer term, the exit of the subsidy policy definitely asks the customers to spend more money, and that impacted to a certain degree on the demand. But taking a look at the rising of Chinese New Energy Vehicle, except for electrification. Another very important factor to this and driver to this is the level of intelligence. People feel quite convenient and quite intelligent of driving their vehicles. So you'd like to say that whether or not it's the electric vehicles from China that rival that of the overseas or rather, I believe it should be electrification plus level of intelligence of Chinese EVs, which are better than that of the overseas. So I think that -- definitely that impacted the overall demand of the buyers. But from a longer standpoint, at the end of the day, we are talking about the intelligent vehicles that have the technology know-how, which is going to be an inevitable trend. You could see that for industrial combustion -- internal combustion engine vehicles, they're having less and less sales, and the penetration of electric vehicles are increasing at the same time. I'm not concerned about this too much. So of course, the whole industry is actually slowing down. Of course, for industry, say, if you're talking about 10 or 7 to 8 years of quick development, naturally, it is going to be cooled down, which is quite natural to have. But from a longer standpoint, the intelligent vehicles that are, first of all, electrified will definitely be the priority and prioritized choice of the mass public. So if we're talking about that, the future is quite promising for the New Energy Vehicle.

Right. I have a second question myself, which is related to the profit margin. In recent years, we know that the New Energy Vehicle is actually growing quite well, and that actually helped to stress the kind of gross margin as a whole. But actually in the top 3 quarters, you had a very low expense rate and very good control on the overall cost. So my question is that, looking down the road for about 2, 3 years, as you might mention, the organizational restructuring as for the productivity and order placement and also cost control, whether that will add more benefits. And from a net profit standpoint, in the top 3 quarters of this year, it was quite close to that of the whole year of last year. So in the next 2 to 3 years, do you think that the net margin could actually maintain the level of about 12% or even higher?

Right. Let's talk about the very first question or first part of this question. Comprehensively, it's difficult for us to have an overview of the prediction because the Inovance Automotive business had a big -- fairly big impact on our overall gross margin, but you cannot limit the expansion of the business of Inovance Automotive. So we should divide this into several business units. The most important part is the absolute revenue and absolute profit growth. Sometimes we might sacrifice the gross margin. But if you're talking about the absolute contribution to the group level in our revenue, this is good. Just now, we said that for Industrial Automation, this is still a very good quality business with a very stable GP margin. It is still competitive to a certain extent, and overall price has been driven down. But because of our restructuring of our products, in Inovance, and we are selling more products with higher margin. And second point is that we are improving the efficiency of the supply side and reducing the cost and enhance the efficiency. So on the overall basis, for Industrial Automation business, we had a very good maintaining of the profit margin. And for expense rate, this is a very important focus for our cost control measures. Of course, just now we said that we had certain strategic businesses, we had a restructuring of the employee structure and the expense structure, but we have to invest more on the strategic projects. So for instance, we need to reduce the cost and enhance the efficiency or reduce expenses, if you like, for the traditional business. So that, overall basis, we are able to control the expense rate at a fairly good level. So this is an important indicator for us. For GP margin because of the impact of business of Inovance Automotive, this is only recorded as a result, right? I don't think that it's viable for us to stop the development of automotive business. But actually, we have another target for net profit margin for the whole group. That would be a little bit volatile because we had a lot of strategic investment projects. But overall speaking, we hope that from a strategy standpoint, we would like to actually improve the GP -- I mean, net profit margin from 12% to about 13% or 14% in some days, which is our target in the future.

I don't have any further question. I wish you a better performance in the next quarter.

Right. Now we are going to give the floor to the next investor. First of all, please identify yourself before asking questions.

This is Du [ Chen ] from Goldman Sachs. I have two questions. The first one is that for the General Automation business, except that you had a contribution from your overseas projects. In China, for some manufacturing companies. In China, they're trying to be globalized. So for the international order placed, probably some of them are from those Chinese companies of going global. So from a product spec standpoint or from other methods, were you able to tell the story that how much of the sales revenue contribution is from overseas? The reason for me to ask this question is that, would you like to actually maintain the growth rate of like 20% growth in the first half of the year or top 3 quarters? How many of them are actually the replacement from overseas in China? Or some of them are actually organic? This would be my first question. And second question is on the area of Intelligent Robots. SoftBank actually acquired the ABB Robotics business. I would like to ask your comment on this acquisition. And to what extent would you regard this as an opportunity to you?

Right. First answer on General Automation. From a business standpoint of the company, actually difficult for us to have statistics of every segment, say, overseas sales, right, in Europe. You might be knowledgeable that for those European key accounts and projects, they procure from Europe locally and from China at the same time. We found that there might be super projects initiated in overseas in Europe, and the Chinese companies are taking that bidding. This happens quite frequently. So I don't think it's necessary for us to have a very clear calculation. As for our statistics, this is going to be a very difficult part to be incorporating. At the current stage for the Industrial Automation, I think that we need to explore in China and also we have to board the vessel to go overseas, which is the most efficient way, which accounted for 50% of the overseas projects. So if we go global as a group, we are talking about, first of all, OEM equipments that went abroad. For instance, if we want to do business with the end customer in overseas, and that is related to the factor solution and the equipment provider selection. So while we are doing this business, we have to have multiple teams working together. The overseas teams need to actually manage the overseas customers well, in trying to establish a very good relationship. Of course, for some overseas customers, they are not going to have Inovance as the only vendor. We might have Siemens working side by side. So actually, we have to compete with Siemens, for instance, in order to get more share from this particular company. And of course, this needs a multi-team collaboration and coordination. But it's difficult for us to categorize that business. So in order to streamline the management, we regard everything about this. It will be a difficult thing for us to do statistics. I don't think that details matter here. But for the group going global, be it is the business done in overseas or in China, as long as we have a positive growth for the companies from China going global, we are in a much better situation. We had over 50% of the growth rate that is higher than the average. So second point will be on Intelligent Robot. SoftBank acquired the business of the Global Industrial Robot business from ABB. We've been following this up for many times. Of course, to me, I think that there are still opportunities for us to catch. On the contrary, why ABB such an international giant would sell this business of industrial robot and even promoting one? So if we're thinking about this answer ourselves, at least that in China, definitely, we are going to be a very important force in the international industry. So I think that definitely in the future, it will be China dominating the whole market. At the current stage, most of the components are still from overseas. But when we are having penetration, which is higher, and also other companies from China that are having higher market share with a more mature technologies and know-hows, I believe that this type of penetration is so important to the automotive market. When we are deepening our penetration rate, I think that will be pretty good. So from this standpoint, I think that for some like big industry, 6DoF robot is encouraged by the government, and this is going to be our opportunity in the future. Of course, acquisition of SoftBank and ABB's Robotic business, you have to have artificial intelligence, right, on top of the robot of ABB. Why do we call it intelligent robot? Because we have the vision, and also we're going to have a lot of other technologies on top. So form factor does not matter. The overall technology know-how is very important. So form factor does not matter the most. I think that, yes, we have opportunities [ aligned ] ahead of us.

Right. Thank you very much, Mr. Song. I really agree with this and truly recognize your future development as well.

Now I would like to give the question to the next one, and please identify yourself first.

Mr. Song, this is from [indiscernible] Haitong Securities. I have several questions. First one is about the Industrial Automation. Just now you mentioned that we had a very good recovery and rebound for the business of this one in Q3. I'd like to understand that what is the profit margin of Automation? And how do you think about the competitiveness on the pricing? What is the level of the price competition? And what about the inventory level of your suppliers? Second question is that how do you think about the positioning and deployment in screw and some of the hardwares of the brushless motor, you were positioning on that, but whether or not you had certain positioning and focus on the software? Just now we talked about the industrial-automated robot working for industrial scenario that is going to be working. So from a scenario standpoint, do you have any specific target?

First question regarding Industrial Automation. The Industrial Automation is a business department and our data core profit part is not at -- I'm not at liberty to disclose it. But overall, from January to September, I can say our operational efficiency is on the rise. We -- internally, we have one caliber called core profit rate. It's increasing as well. And in terms of price, price is still having somewhat of a rat race, fierce competition, but slightly better than last year. Every year, there's supposed to be a price drop, a little bit higher than that of the past year. But overall, to our product structural adjustments, for example, high-margin products like PLC, we have a pretty nice rapid growth. And secondly, with our cost down on supply chain management and expense management, our overall gross margin have kept pretty well. It's just the price went down due to the competition. And thirdly, in terms of the downstream inventory, on the customer end, our clients don't have much inventory. It's just the -- mostly just the inventory of the dealers, but it's not a great time for dealers to build inventory at the moment right now. They're still just building normal inventory naturally. And secondly, in terms of the Intelligent Robots, hardwares, we are covering all those preparations. And for -- in terms of the models, we're not good at building those big models. We just apply those, especially those open source large language models; we use those. But on the software side, we have two things we have to do well. One is Computer Vision. Well, it involves something related to the large models, but we can combine our robot team with Computer Vision team so that on the controlling end, there might be some chemical reactions between the two teams. We also announced an AS-Interface Camera. If you can watch that video on our public WeChat account, combining software and hardware together, it's pretty strong. And thirdly, motion control. And for the humanoid with the training of the large language models, it's hard to make the final touch of the robots really fine, and you still need some motion control bit. And how do you combine that and engage it into the large language model? That is something we are good at, at Inovance. So on the software side, apart from using the large models as well as our Motion Control System, we need to integrate those really well together with the previously mentioned Computer Vision with motion control or large models. So basically, not just the hardware. We are investing in the software part as well. Okay. Any other questions?

Well, thank you, Mr. Song. I don't have other questions, and I hope Inovance will have greater performance afterwards. Thank you.

Next one 8277. Please state your name and institution name before asking your question, please.

I am [indiscernible]. And I do have a few questions regarding General Industrial Automation. Apart from PLCs and others, we do see that there have been some quite doubling revenues. Could you help us break it down to tell us what exactly are the ones having that strong momentum? And how is it going to develop further in the future? And that partnership of going overseas, we know it's growing really fast, but how do you actually have that encountered in your whole picture? How much is the overseas ratio for that? And for Intelligent Chassis, you have a lot of differentiated markets in the niche. And how do you see the differentialities of those ones in terms of profitability and operational difficulties?

Well, first, the other products category in General Automation, well, from pneumatics, from 3C to precision machinery, to high-efficiency motor apart from servo motors, well, all of them are growing pretty well. Drives, the absolute value is not very high, just a couple of millions with a 60% to 70% growth. CNC machinery, and precision machinery are growing pretty fast as well this year, especially the precision machineries in the CNCs. Those precision machineries in CNC normally are dominated by Japanese brands or brands from Taiwan. And this year, we've started to enter that market and with pretty fast growth. Also sensors. Our sensors -- well, not including the encoders, just the sensors. Well, you do see they are a very small scale at the moment right now to not contributing much to our overall business. We're just cultivating those business of ourselves. And secondly, in terms of that partnership-driven overseas expansion, well, in between January to September this year, the contribution would be around CNY 900 million to CNY 1 billion and accounted for 50% to 60% of overseas business. With NEV, Intelligent Chassis, you asked about its future competition landscape, how is it going to be? Well, I believe in the automotive industry, overall competition is always fierce. Even if it is highly developed, lots of R&D development devoted into it. But when standing in front of the key accounts, yet still you feel quite much in pain or effortless. And that is a dilemma in the automotive industry. But we, Inovance, based upon our understanding of all those legacy technologies of ours, electronics, electrics, wire controls, we are going to do well. But how much higher gross margin that's going to be for our current EIC systems? Well, it's hard to say. But definitely, this is -- well, Intelligent Chassis will definitely be something we are more -- with advantages on rather than our competitors because for those electric drives and motors and controls, that's what we are really good at with Inovance Automotive. The competition, even if there's going to be, well, still our competency is quite good. And in terms of profitability differentiator, well, it's really hard to say. It's still too early.

I don't have follow-up questions on that.

Now investor with #7664, please state your name and institution name first.

Hello? Hello? Can you hear me?

Yes. Please.

I am [indiscernible] from HSBC. I have two questions. One is that Mr. Song, you mentioned General Automation business in third quarter overall gross margin is flat with last year if we do not consider the NEV gross margin lowering. Just asking for your confirmation on that. And secondly -- second question for overseas. I remember a few years back, you said overseas business is going to be 20% of the overall revenue. So I would like to ask how do you see that target now because recently, we do see some FA or overall, they are having somewhat of a recovery as well. So do you think now or by which time we can really get to see more large-scale expansion in terms of the volume for your overseas business?

Well, thank you for your questions. First question, Automation Q3 gross margin. Overall, it performed pretty well, slight increase compared to last year quarter 3, not due to the price got increased, which is not true. The price are still under fierce competition. But as I said, we have high gross margin products -- structure got improved and also expense control, cost control on the supply side as well, which contributed to the improvement of gross margin. And as to your second question, overseas business, well, yes, indeed, a few years back, we announced that we have a future target to have 20% to 30% overseas business. And that is going to be -- was going to be mainly driven by Industrial Automation. The target remained still now. But indeed, we encountered some difficulties quite a lot actually. The first challenge would be that Europe and North America, they have that awareness for Chinese brands, which needs some more time to be changed. Italy, Europe and the United States market, their requirement for products, especially if it features functional safety, they require differently, and it takes more time to develop. Thirdly, the people, the talents in overseas market, when compared to Chinese engineers, their spirit of growth or their responsiveness to customers well or, let's say, their understanding of those achieving high challenging targets, they're simply not the same with how Chinese engineers would work. I mean the work style is quite different, and it needs time to be solved. And right now, we are still in the process of aligning between domestic and overseas. If we have more domestic engineers start working overseas and drive the whole platform higher, we still need some localized talent there from the local countries and to establish that culture of the business and continue to optimize as well as optimize our stimulative measures to really stimulate our overseas talents to accept higher challenges and overcome difficulties. And our brand strategy well, through some exhibitions and expos, we're going to be in those as well. Overseas customers, they really value expose a lot. It's a very big and important window to increase brand awareness in the overseas market. Now that we have realized this, we are going to increase the frequency of how we participate in those overseas exhibitions. And it is not just simply selling products. It requires time to be devoted into it to accumulate. Well, we do not change our target for overseas business, but we do now realize those challenges, and we will solve those -- address those gradually.

I have another follow-up question. For your overseas business, now in different two regions, which areas are faster for your development, in developed countries or developing countries?

Well, for the automotive industry, definitely developed areas like Europe. But with General Automation, if we look at orders, it's the emerging countries having faster response while developed countries are slower. Because some products need some time to be developed.

Now I would like to give the floor to the next investor. And please identify yourself before. Thank you.