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

Everyone is on mute. Pleased to give you the announcement. For this conference, this is only servicing those investors upon the reception and invitation for the presentation, and minutes are only for internal use. For Inovance, we do not authorize any media to disseminate the minutes of this meeting. For those dissemination and republication are the infringement of the rights without the authorization, and we held the legal obligations and we are not responsible for any losses caused by the dissemination or reproduction. There is a risk in investment. Please be precautious in making decisions of investment. [Operator Instructions] Now please allow me to give an introduction about the management. Director, Vice President and Board Secretary, Mr. Song Junen. Now I would like to give the floor to Mr. Song.

Thank you very much, moderator. Thank you very much, investors, for attending today's meeting of Inovance's 2026 half-year report. As usual, I would like to give you a walk-through of our performance in the first half and then start the Q&A. First of all, let's briefly take a look at the situations in China and overseas and the opportunities, challenges and countermeasures that we took. As everybody knows that in the first half of the year, overall speaking, for the industrial components because of the AI investment and the export of Chinese equipment to abroad as well as the core equipment and core parts self-controllability, we have seen very good demand. At the same time, for industrial automation as an industry, the order placement had a very good growth. This was pretty much the highlights of the first half of the year, especially for the downstream of the industry. Another point I would like to say is that we are facing some of the good opportunities in the first half of the year. First of all, we had a very good and robust AI investment and empowerment of AI to manufacturing industry. We've been seeing a lot of AI plus manufacturing and physical AI. As for industrial automation industries, and especially when you combine hardware and software altogether and focusing on this manufacturing industry, I believe that this is a very good opportunity. So we have been making efforts in this area. We used artificial intelligence to empower the automated products. And we have AI plus automated software and hardware to empower the manufacturing industry. There's another very important opportunity, which is the very good solutions and applications in different scenarios, for instance, in those different verticals. Of course, we do not have those general purpose solution. But you can see that still there are many different factories and brands that are pretty much focusing on those closed-loop solutions for the added values in different verticals. This is providing very good soil for the growth of humanoid robots. Another one is about the energy revolution as well as the new power electronic system-related investments. So we have been seeing a lot of good opportunities brought by this. So we had a lot of good opportunities in the first half of the year. We had short-term AI investments, and we have AI empowering manufacturing, which is lasting for a very long time, and we have general-purpose humanoid solutions as well as energy revolution. Of course, everybody knows that we had a lot of challenges in the first half of the year, first of which was that for the automation or industrial automation raw materials, we had rising costs. Rare earth, aluminum, for instance, that are actually increasing their overall prices, and this has continued as well as some of the electronic materials that are actually increasing the overall cost. So this was pretty much impactful to our overall cost. Second point is about the new energy vehicle. From an official data, you could see that for NEV sales, this is declining here in China with around 10% or so decrease. So of course, we had actually a pretty much challenging situation for demand and this impacted our subdivision of our business. And third is that we had a K-shaped economic divergence, which is manifested as one end with a very hot investment. The other is having a coldness of investment. This is impacting our overall budgeting and the applications of our projects. Because of these external opportunities and challenges in the first half of the year, we had several countermeasures that we took in the first half of the year. First is that on the supply chain side, we had all kinds of different cost increase and shortage of supply of some of the raw materials. On the supply and R&D side, we had different countermeasures to overcome the difficulties. Another point is that you've been seeing some of the lack of capacity in the first half of the year. And we made our efforts to expand our capacity and to, for instance, increase the overall shift and secure delivery. This is pretty good and well guaranteed. Another kind is about the marketing, which is that we actually increase the product prices and focusing on those opportunities and secure very high growth of order placements. At the same time, the product price increases are actually quite important, for instance, for control system, for servos, and inverters as well as the industrial robots. We have adjusted, i.e., increased the product prices to different scale and also give us a very good outcome, and this has offset the impact of the raw material price increase. And third point is about the operations. We have been seeing a reduction of costs and improvement of quality and efficiency. So the overall operational cost has been reduced. So this is actually something that we had in the first half of the year. At the same time, with regards to some of the external opportunities that we had in the first half of the year from a strategic application standpoint, we've been seeing a very good operations. For instance, first part is AI plus, for instance, AI plus manufacturing industry. As for Inovance, we have to embrace AI plus automation plus China manufacturer. We needed to empower the industrial automation solutions with artificial intelligence and especially empowering the Chinese manufacturing industry to be developed on a more intelligent track. This is a very important strategy that we have. In many different products, we have been seeing some of the AI features added. And at the same time, we have launched the iFG AI platform on which not only our own AI agents could be developed. And at the same time, we're able to provide a platform for developing the AI applications for our customers. But this is the platform that is under the construction yet. Of course, as a giant company of industrial automation, we had features or advantages of software and hardware combination, and we had a very solid foundation for manufacturing industry, and we had a lot of scenarios of manufacturing industry. So we believe that we could combine AI with China manufacturing. The second point is about the humanoid robots. As for the components and parts that we have started the business with last year, we have been seeing a very good validation. And in terms of electric motors, we had a small batch of sales already. The seven axis, the bionic arm has already been validated. At the same time, we have the general purpose humanoid solutions for industrial applications. We have already seen some of the samples or I mean the portfolios and some of the prototypes and started validation already. Third part is about the energy. We believe that we have to seize the opportunity of the development of ESS and develop those projects in overseas, which is actually already disclosed in our annual report. Another part is about the zero carbon emission. Together with some of the governments, we have already seen some of the sample examples with some of the governments about the zero carbon emission. At the same time, we've been seeing a forward-looking deployment of SST products. The fourth point is new energy vehicle. At the same time, we've been seeing some of the stressful situation for the operations and maintenance of NEV, but we have a long-term strategy. First important strategy is some of the overseas validation point or nominations. As you all know that you can see that in Europe, for new energy vehicles for the quality and gross margins, they're actually pretty higher. And second point is about the intelligent chassis. In the future, a very important solution would be the intelligent chassis solution. So with regards to this overall trend, we had a very good strategies taken in the first half of the year. So in terms of this proactive suspension, we had batched sales with a sales value of exceeding CNY 100 million. At the same time, we had some of the nominations already. And next, with Inovance Automotive company, 800 volts or 550 volts. We have some of the technical advantages with our understanding of the solutions and the auto grade solutions, we are also going to offer next-generation AI server power supply solution, but this is still on R&D. And very last point is globalization. This is actually quite important as well, and we've been focusing on this for years. In the first half of the year, except for tackling against those opportunities and challenges in the short term, we are also laser focusing on the application and implementation of the short-term strategies. And these are pretty much supportive to our business in the long run. While talking about those operating performances, I would like to give you a recap about financial data in the first half of the year. From operating revenue, CNY 24.7 billion, increasing 20% year-on-year. Overall speaking, even if we had some of those pressures from automotive industry due to the outperformance of industrial automation, we are meeting our expectations in terms of revenue. Net profit attributable to parent shareholders, CNY 2.81 billion, minus 5% year-on-year. That was due to the loss-making of automotive industry, and that was quite stressful. But if we exclude the automotive industry, we had achieved pretty good net profit. And NPAPS, excluding nonrecurring items, CNY 2.76 billion, increasing 3% year-on-year. But in those particular kind of item, we have also those incorporated fund in overseas. So because of the forex reduction and depreciation for the fair value related investment returns, in the period, we had actually less impact. So this was actually pretty much shocking. But excluding that, we had actually increased 3% in this item. Net operating cash flow, CNY 1.98 billion, decreased by 35% year-on-year. This seems to be a large figure, but you all know that in the first half of the year, especially in January and February, we had raw material cost increase. And in terms of our order placement, we had a very good growth. So overall speaking, we had built up some of the inventories for raw material. And in the same period for the raw material prices that we are paying, it was about CNY 1 billion or so more. So this impacted this... And as for gross margin, despite the increase in price of raw materials, but yet still, overall, we maintain our gross margin to be pretty healthy, down by 0.48 percentage points, but mainly due to the impact from the automotive business. The expenses, our selling, administrative and R&D expenses all added together would be CNY 3.9 billion, among which R&D is CNY 2.2 billion. And the 3 expenses accounted for 16% of revenue, while R&D maintained at 9%. So this obviously shows that we still have this very positive investment into our R&D. And next, if we just look at Q2 for 2026, the second quarter operational performance overall is better than that of quarter 1. For example, operating revenue is CNY 14.5 billion, year-on-year growth, 26%. Net profit attributable to parent shareholders is CNY 1.8 billion with a growth of 9% year-on-year. The NPAPS, excluding nonrecurring items would be a growth of 19% and gross margin is up by 0.43 percentage points. So in quarter 2, be it our orders at hand and also our way of dealing with the raw material price hike by passing down the price pressure overall has been pretty effective. So our operation in quarter 2 was better than quarter 1. Now let's take a look at the different breakdowns of our business. First part would be industrial automation and digitalization. The overall general automation is CNY 11 billion, up by 36%. This is beyond expectation, and this helps to bring a very strong support fundamentally for the revenue of our company in the first half of this year. And second part of that will be elevator with CNY 2.4 billion revenue, up by 5%. Next one is NEV powertrain systems, CNY 9.4 billion revenue, up by 4% due to raw material price growth and our price linkage, we had very difficult negotiation with our clients. Some of the prices haven't been confirmed yet and the delivery has been delayed. Overall, it's due to the macro economy and environment. So overall, NEV sales are domestically decreasing. So there has been only 4% growth to our NEV powertrain systems. And as for our emerging business, it's been pretty well, up by 96%, and the revenue was CNY 1.5 billion. Now let's take a look at this slide since many of you are concerned about our price adjustment methods, considering some other competitors are not doing so and whether this is going to affect our market share. And if you look at this slide, you get to see our market share on general automation, industrial robots, also PLC, AC drives, mostly they are on the rise as well as the powertrain systems of NEV, motor stator, motor controllers and OBCs, et cetera. The market share performance of ours has been pretty positive. Okay. So now let's take a look at our H2 business strategy. Second half of this year, we're going to be focusing on the right following things: one, on the marketing and probably you have all felt from the capital end that the upstream of industrial automation, there are more than the bulk commodity as raw materials. There is also electronic devices, including chips, IGBT and the PCB boards, et cetera, are having to start their price hikes. And in order to do that, we are going to continue to uplift our price to pass down the pressure of price to the client side. Although this is quite pressured due to the current economic situation, but we are still focusing on trying hard to raise our price because we are anti-involution. And secondly, as for the new opportunities emerging in the market, including AI investments and the localization increasing, there might be some chances while other overseas competitors are in a short of supply due to their shortage in raw material and supply, and we have to capture those opportunities. Next, in our strategy, well, the high-quality businesses of ours, we are going to have further investments, including the PLC, HMI and also the AC drives, servo systems, et cetera, which are the ones that we have more competitive advantages on, we're going to continue to do that. And as for AI humanoid, and new energy, the strategic investment will continue. And in the past years, we have been laying quite widely in terms of many businesses. And right now, we are also considering to execute the retrenchment strategy so that we can focus more of our resources on to the more potential ones. The third part would be SCM, the supply chain. On one hand, we still observe that the bulk commodities and semiconductors and the electronic raw materials are having price hikes still ongoing, and we are actively responding to that by, on one hand, negotiating with clients to pass down the price pressure to clients. And secondly, also include more suppliers and change some of the raw materials in our production to deal with the price increase in raw materials. And there are some raw materials which are now in some sort of short supply, and we are taking advanced measures to ensure the delivery. And the fourth aspect would be, as you may know, Inovance has been making our organizational changes to combine AI businesses by establishing substantial organization so that in the future, we could leverage AI better to empower ourselves as a manufacturing business, also continue with a more independent business delegation management, decentralize our management for independent business units. And as for the expenses, we still have very stringent and strict control of the cost to further do the cost optimization. So those are the strategies we're going to up here in the second half. So we are not making any changes to the overall guidance of this year's target. Revenue 10% to 30% growth. Net profit attributable to parent shareholders, also in between 10% to 30% growth. So that was a recap of first half of 2026 and also some strategy explanation for second half. Now let's welcome the questions.

[Operator Instructions] Question from telephone number ending with 6981, please state your name and organization name, please?

Mr. Song, I am from Dongwu Securities [indiscernible]. Well, Inovance in the first half of this year, you have been performing very strong, especially in industrial automation. So I would like to ask about the industrial automation business. Second quarter, revenue and profit are both higher than previous expectations. So what do you think of the momentum into the second half quarter-by-quarter as well as year-on-year trend? And overall, the entire industry in industrial automation has been performing better than expectation. And how is it going to be in the next year? And you also talked about the combination of AI empowerment of industrial automation. Could you elaborate on that to talk about whether this AI empowerment is going to further expand your leading advantage and becoming another new central part of your growth in the future? That was my first question.

Well, thank you for the question. In the first half of this year, the industrial automation, also the AI investment, the localization increase as well as the exporting businesses. Anyway, the demand has been pretty strong from all of these aspects and caused our order to surpass beyond expectation. And that overall trend is still existing into the second half, but don't expect it to be as popular as in the first half because in the first half, if you look at our orders, especially in March and April, we have a large amount of orders during those 2 months. I think in the second half of this year, the overall trend is still going to continue with that momentum, but might be with some fluctuations. So not as prosperous as in the first half. So in terms of the revenue for this part in second half, we're still going to hit the target for our operational targets. And as for next year, the overall momentum would continue positively. So like we said before, industrial automation overall is now in a pretty upward cycle, though we're not making any budget for next year yet. But overall, the expectation for next year is quite optimistic. And secondly, about industrial automation plus AI, like you said, indeed, from Inovance's perspective, we now put our key focus is on better leveraging AI, using AI to empower the manufacturing business of ours, of the manufacturing business in China and empower the industrial automation. Of course, we are using the large models provided by others, but based upon on our know-how and experiences about manufacturing business, leveraging the data we had in our data pool to train some vertical industry-specific models. And together with the inference models, we are offering these products portfolios of industrial automation plus AI as well as [ AIFG ] platform plus industrial automation. So the industrial automation solution, which has some AI functionalities is what we are aiming for. The target is to reach several application field, including industrial automation plus vision AI or, let's say, we put AI functions on the servo product. So it does automatic healthiness check of the production lines and efficiency check. And the PLC could also added in with a bit more of an AI function to finish some part of the coding process. Such functions, well, our AI research institute has been operating for several years. [ AIFG ] platform has been explored since last year and some new products have already been launched into the market. Of course, the AI functions are not as capable as you probably have imagined, but it's a progressive and gradual process with the large models being becoming more mature. Also by adding on our know-how for the manufacturing business, we are helping to train some of the vertical smaller-sized models and manufacturing small models. These are really needed by manufacturing businesses in the industrial automation. And together with our AI inference model and the mechanism models to finish with the AI empowerment. That is the bigger picture, though it hasn't been achieved yet, but it is a gradual process.

So as you said, the second half of the year is not as good as the first half, but I would like to understand, is it good that you had a very affirmative 30% to 40% of the increase in the second half of the year?

Okay. So it is very hard to say. But in terms of detailed figures, how much of the growth that we're going to hit, this is difficult for us to predict because we only had the visibility of a short period of time of our order placement. But overall speaking, I believe that we are going to have a very good momentum last. But if you are talking about 40% to 50% of the growth as Q2, it will be a little bit difficult.

Understood. Overall speaking, you had a very good momentum kept. So my second question here, Mr. Song, is that I'd like to understand the Inovance Automotive company. It had a weak second quarter. So we would like to understand that for the automotive business in the second half of the year, what is about the price part 2? And how well you are going to eradicate the revenue and profit, whether we are going to have very stable growth in next year. Is it okay for you to talk about this and it's quite complicated at the current stage. How do you think about this?

So yes, surely, it is quite complicated talking about the new energy vehicle industry. We had a lot of debuff this year. For instance, first of all, the industrial situations, the decline of the sales in China, this was impactful to all different industries. Some of the OEMs' profitability, as you see, was bad, and we had big losses made for most of the companies. That means that the demand is not picking up. And second is that we had raw material price increase, which was more impactful to automotive industry. So for instance, this particular general [ bus ] has been impacted because of the copper price increase. For majority of our raw materials, we have been actually now seeing the impactfulness and the system management as well as aluminum and rare earth, for instance, pretty strict management and IGBT also, we have some of the price adjustment. So we have seen stressful situation. For automotive business of our own, we've been seeing some of the situations. First of all, we had a tax of CNY 120 million in the first half of the year. Without that, we would not make a loss and you could see that we had actually this CNY 120 million additional taxes. And second point is about some of the customers of Inovance Automotive company. We had 1 to 2 key accounts that performed pretty good last year. But this year, they did not reach the expectations. We had all kinds of different influential factors, and this caused a stressful situation of our operating profit in the first half of the year. In the second half, we think that the demand will be quite poor as well, and it is very difficult for us to pass through additional cost to downstream. For some of our customers, we could only actually predict this price as a virtual one because for the majority of them, we are not confirming the final price. But what about the changes that we are going to experience in this industry? First of all, I don't say that there are a lot of changes happening in this industry. So whether it should be L-shape, it has already reached to the bottom or whether there is a rebound, it's not quite affirmative. And second is that it is still continuous in terms of the raw material price increase. And next is that for some of the price increase for some of our customers, they accepted it already, but for some, they are not. So if the raw material prices increase further, and I believe that the price pass-through mechanisms will be more adopted by our customers. So I think that in the second half of the year, in terms of difficulties of pass-through original cost, this will be lowered than the first half of the year. But whether or not all the customers are going to be accepting this, this will be difficult because we are talking about difficult operation on our customers' side as well. When you have all the factors combined altogether, if you ask me to predict the performance of the second half, it's difficult. And in the first half of the year, we had the taxation. And I believe that excluding that tax, it could be less stressful in the second half of the year, and it will be even less stressful next year because as you know, that overseas market would be actually one of the focuses of Inovance's automotive industry. And for some overseas OEMs, they are actually accelerating electrification process. Inovance's automotive company, we are actually doing global market quite early, and we had advantages. And second point is about intelligent chassis business. We had some of the bad sales in the first half of the year. And now we have more customers of choosing intelligent chassis. This will be something advantageous to us because we have a leadership positioning. So these are all some of the good news to Inovance's automotive company. Next year and the year after the next year, I believe that definitely, it is going to be less stressful than 2026.

I would like to have a third question, which is that on the humanoid robot. In terms of components and parts, you had a very good leadership positioning. I want to understand that how is the situation or what is the volume of sales? When are we going to expect further nominations from customers? At the current stage, dual pedal robot is going to be launched? And do you have a timetable on that?

Okay. So we are actually now doing this particular components of humanoid robot later than the others. And you all know that it takes time for us to have, first of all, nomination, right, just as automotive industry. So we are actually launching the components later than our peers. So we receive nomination later than our peers. And second point I'd like to say is that at the current stage for the robot, if you're talking about those truly advantageous robot makers or if you are saying that guaranteed very good performance in the future, this is too early for us to say that whether there is any name. First, about the humanoid robot itself in terms of application scenarios, at current stage, it is not realized yet. As you all know, that most of the scenarios are not something that the investors are really in favor of. So for application scenarios, we need to sort them out and especially general purpose humanoid robot, as I used to say, that it takes at least 3 to 5 years for this to be truly implemented. At the current stage, most of these scenarios are verticals. Now we have some nominations, but still it is difficult for us to have a very precise prediction. I'm always making a comparison with automotive industry. So Inovance Automotive company is not those early companies, but at the current stage, we are the best company in working on this. And for some of the early comers, probably most of them have been phased out. And I believe that it's going to be the same situation for humanoid robots. At the current stage, the scenarios are not mature for applications. So for components and parts, we just follow our plan and we select our customers to work with. If the customers don't have any sales volume or if the application scenarios are not good, it's going to be a burden to us. So we are quite selective on customers. And we have to know that the customers are going to be survived until the end. Otherwise, it's not meaningful for them to place order with us. And second is that we are selective on the application scenarios. So just because of this, we are receiving nominations. Nominations means that we have tailor-made products. But if it's not a strategic scenario, we just provide a standardized components, we don't want to spend too much of our time or energy to do tailor-making situation. This is our strategy of components. As for the [indiscernible] or general purpose humanoid robot solutions at the current stage, we don't have thinking about making components for bipedal robots. Because we're only talking about the industrial kind of scenarios, and it's less likely for them to adopt bipedal robots. But we would like to have quite flexible solutions like the wheel-based or bionic arm to be applicable to the industrial scenarios. But these are not general purpose. They're just working for different verticals. We just focus on one working spot. We do not expect the humanoid robot to work as humans. So you can see that this is something that we need to solve as the biggest issue. We have 2 bottlenecks at the current stage. First point is the general purpose capability of large language model is not good enough. We need to actually train the AI with or train the robot with the vertical data. And for -- we need to actually mitigate this with motion control. And second, some of the motion control capability is not that good and especially that we had actually quite poor controllability of those fine work. So this is actually what we believe. In the future, it might be the case that there might be general purpose robot coming out, but it's less likely to be the case. So in the next 3 years, we just focus on different verticals application. If you're working on general purpose humanoid robot, it takes a longer time. And it's not good in terms of motion controllability for fine manipulation tasks. And we need to gather data further, which takes time as well. We are now targeting industrial applications and some of the vertical applications, for instance, on working spot or in the small factory, be it we're talking about intelligent arms or six-axis bionic arm or talking about wheelbase, you just have solution. And if you provide solutions, you need to validate that solution, right? And you have to provide your performances to guarantee your reliability and it should be cost friendly as well. So this is quite comprehensive. This is indeed the strategy of humanoid robot components and some of our solutions.

[Operator Instructions] Now I would like to give the floor to the next investor, and please identify yourself.

I am from the [indiscernible] mechanics and my name is [ Han Shaoming ]. I have 2 questions. The first question is from a half-year report, you can see that in different segments, like the frequency converter, you had about 40% of the increase. And for servo, 80% of the growth. So does that mean that for downstream industries, we had a lot of conventional industries that are having very good growth. According to your knowledge, how do you think about the overall driving forces at the back end? Another point is about the July and August figures. According to our communications, we had about 40% of the growth in July. And in August, whether you are going to maintain that overall growth rate and across different industries, whether or not you are seeing anything that is becoming better or stronger or anything getting weaker? Pretty much about this. And second question, I would like to know from you is about the Suzhou Inovance Automotive. The Inovance Automotive company in their annual result announcement or the interim result announcement had also been seeing some of the new businesses. I'd like to understand that how do you think about the overall product at the current stage? And in terms of doing something and for some of the time spot, how do you think about this? This is pretty much about my 2 questions.

Thank you very much for this question. The first question was about the general industrial automation and what is about the order placement situation. As you said, that in the first half of the year or in Q2 of this year, overall speaking, the downstream and the order placement was pretty good. I remember that we had about 20% to 30% of the or 20 or 30 different industries that had over 30% of the growth. And AI investments were pretty good and brought the growth of 3C industries, handset makers and the tooling machines as well as the heating and the vending machine providers. And also, you know that we had a very good growth of the lithium-ion batteries as well as HVAC. So in China, for some of the critical equipments and areas, we had domestic making like automotive and semiconductor industry, and these kind of demands also give a very good advantage to Inovance as a leading company in China. So you can see that in these 2 industries, we had also pretty good growth. Yes, of course, there are some more traditional industries, including plastic injectors and textile air pressor industries, et cetera, they performed pretty well in the first half. But mainly including for air pressor or plastic injectors, they are more for exporting. But some OEM equipment in China with the capability increased so much, they used to only compete domestically, but now they can compete in the global competition. So the increased export of them have also brought to the growth of our business in industrial automation. So indeed, in the first half, our performance were due to several factors overlapping with each other. And there are going to be pretty good growth in July as well, around 30%. The August number hasn't come out yet, probably not as fast as previous month, but one reason is that the process industry wasn't performing that well in August, including metal, smelting, metallurgy, the non-iron metals and chemical processing. These industries investments were not that well. The process industries investment has been relatively weaker recently when compared to over the past month and especially that they had a pretty high base from last year. But of course, the numbers are still haven't come out yet. The overall situation was like this. And probably we just need to wait for a few weeks when we had the number for August, and we're going to communicate with you again probably. And the next question of yours about Inovance Automotive, the data center server power supply. And right now, we are creating samples and delivering to clients for testing. Based upon our communication with them, we would do continuous feedbacks and build newer samples as for when the official delivery is going to happen, it's still going to take some time. Thank you.

[Operator Instructions] Next one, phone number ending with 7983, please state your name and organization first, please.

I am Sheng Zhong from Morgan Stanley. I have 2 questions regarding your new businesses, emerging businesses. Well, as for embodied intelligence, you talked about how the bionic arm, you've already finished the whole sample verification on the client side and the [indiscernible] humanoid business has also been sending samples to your clients, but you also said you will need more time for it to be really applied. But as for the bionic arms, do you have an estimated volume of it in the near future? And as for the humanoid application, based upon that trial process, could you elaborate on how that testing process is for the sample capabilities? And another question regarding energy for digital businesses, I see the gross margin from your report, there's a 5 percentage point of decrease. Is it because of the gross margin pressure there with the digital power part? In the mid and the longer term, what's your perspective and attitude for the long-term gross margin for that part of your business?

Well, thank you very much. Bionic arm -- for bionic, indeed, we've sent samples for the testing and finished with the verification process at the client side. There are some expected volume, but not at convenience right now to talk about it. And of course, it's going to have a ramp-up process, not going to have immediate large volume. It's going to be a very gradual process, including for humanoid and also the components, including the bionic arms. Originally, we had a plan to have 2 or 3 to have finished closed loop for the value of those. And currently, we're still within the pace for that. And only when the value loop got closed, clients would think, okay, so this thing is valuable to my business. It has to be good in cost, efficiency, reliability and application functions. And right now, we haven't met that condition yet, still need like half a year to achieve that at least. And as for digital energy, well, you could see we didn't independently disclose the number of the gross margin for those emerging businesses. And indeed, the reason for gross margin decrease is because we had a higher proportion of that business from the digital energy because we are now extending the overseas energy storage business. And you could see revenue-wise, it increased by 200%. Order number increased 100% in the first half year-on-year. And the higher volume of digital energy for energy storage facilities overseas draw down the overall gross margin for our emerging business. And secondly, for the energy storage business itself, the gross margin had been in the increase, especially overseas is higher. Even though there are some raw material price increase, yet still overall, the gross margin is being elevated there as we are also adjusting our product portfolio. And for example, the digital energy, the local PCS, we -- according to our internal saying, we actually abandoned order with accumulated value of over CNY 10 billion to -- CNY 1 billion to CNY 2 billion. In between that, the value -- the order amounting to that much value were abandoned just because we don't want to engage in price wars domestically. And overseas, overall, the gross margin still has been relatively higher. It's even though now at pretty low level, but it's been constantly improving.

[Operator Instructions] Next one coming from cell number ending with 9160. Please state your name and organization first.

I am [indiscernible] Securities. I have 2 questions. One is your first half industrial automation revenue growth has been very positive, and you talked about how you made some price adjustments in the first half. So I would like to ask you with that increase in your revenue, how much were contributed by your price increase? And if we were to further look at the second half of this year, you said some more price increase are in the process. So we would like to ask you what is your plan on adjusting the price upward furthermore in the second half? And also another question regarding emerging business. Could you help us to break it down to the revenue split between industrial robot, energy storage and PCS. And the next question, financial-wise, we noticed that in the first half, your asset depreciation, amortization and credit amortization, the provision were a bit higher than expected. Is it mainly because of the Inovance Automotive business? And I see the provision for credit amortization has been CNY 200 million in the second quarter. So which business is it mainly coming from?

Thank you for your questions. First question regarding pricing adjustment. Price adjustments made were positively impacting our gross margin because hedging against the raw material price increase, but not completely because raw material -- because the gross margin is a year-on-year growth, but adjustment is based upon the price in December. So if you're asking about the contribution of price increase to the overall revenue, it's a very, very fractional number because if you look at the number of order, how that had grown. It's 40% to 50% growth in second quarter alone. And more impact would be on the gross margin side. And the second half further upward adjustments will continue. You see the PCB raw material price increased by several rounds. It has started to affect not just industrial automation, but many other industries as well. [ LMCC ] and semiconductor chips and the power devices, those are also having trends to show they're going to increase their prices as well or have already issued price adjustment notices. So not just the bulk commodities that had price hikes before. Overall, the cost pressure still is there and further -- maybe furthermore in the second half. So we're going to increase the price furthermore. Not sure about how competitors would do that, but this is what we are going to pass on that price pressure by price linkage to the clients. We will try our best to do that. And also as for the emerging business, well, industry robot, around CNY 600 million, digital energy, CNY 800 million. And third question of yours about asset amortization and credit amortization. The credit amortization are completely based upon our contract volume. So that CNY 200 million provision are completely normal based upon our collectibles and also in compliance with the accounting rules is just that with this year, the Inovance Automotive business, some products cannot have the price further increase. Some products are having negative gross margin, and we had the provision for that asset amortization. In the second half, if the price could be increased then there's going to be some hedging against that. It's going to be improved.

I wish your company has a bright future in the second half of this year.

[Operator Instructions] Next one, cell number ending with 9649. Please state your name and organization first.

I am from BoA Securities. And I have 2 questions. One is in your industrial control products. You had a lot of market share growth there. Small PLC last year, it was around 9% to 10%. And this year, it's now 14.6% and some Japanese competitors are having lower market share. And does that mean this localization trend will continue to further expand in PLC products, even expanding to large PLCs. Now your large PLC is also having market share increase, but still having some gap to catch up to when compared with the first one in the market. And are you going to continue with that trend? That's my first question. And the second question about energy storage-related emerging business of yours. Revenue, you said it's around CNY 800 million. So basically, as far as we know, they are mostly from clients from domestic. So what about some of the buyers, they're quite worried about how the energy storage demand are going to slow down next year. And how do you see that? And are you going to prepare to adjust the split between domestic and overseas business for that?

Okay. Thank you for your questions. First one regarding PLC, especially the small-sized PLC. Well, like I said before, most Chinese produced PLC can meet the demand in most application scenarios. So that localization trend for small PLC is very clear, plus our innovative delivery capacity and our efficiency, this trend is very clear. And for large PLC, if you look at the demand for localization, it's been pretty strong, mid- to large PLC, they are all applied in those more important sectors. So their demand for PLC has been pretty high, and they want better process and also coding and programmabilities. So willingness has been very strong. But in China, those made in China, large-sized PLC versus the competitors in the world is still having gap in terms of performance and still there is demand, but because of this gap in terms of capabilities, the replacement speed is not as good as that of the small-sized PLC. But in China, for Inovance and other companies, while we're improving our capability in manufacturing, those large-sized PLC, especially with safety features, we, at the same time, had [ iFA ] platform for automation application coding, I do believe that at the same time, our medium and large-sized PLC will actually be accelerated in terms of the replacement of those imported companies. So the demand is still there and very urgent as well. In recent years, we've been actually seeing some of the short advantages of our large-sized PLCs. First is about the safety. And it is very important, safety and security. And the third point is that when you're using medium and large-sized PLC, whether it's convenient, and whether you have any IFA kind of software or industrial software. So on that engineering software, you're just not making everything and you're able to make simulation, adjustment and fine-tuning, et cetera, in that software. In the current stage, we are improving our capability. So when that is the time, I do believe that our medium and large-sized PLC will actually replace more those imported PLCs. And second question is about the Energy segment. As I have already showcased that we are now doing this business in China and focus on the business in overseas. In the annual report, we have already said that in overseas, we have focused on several areas, India, Europe, Australia. We have already had breakthroughs. And we had about 3.9 gigawatts of projects signed. And in terms of revenue, we had about CNY 120 million sign off overseas revenue, and it's very good momentum. But only we have projects, especially in Europe, now we are trying to find some of the partners to work with us. You all know that we are now doing the PCS, not system integration. So in overseas, we've been passing some accreditations and finding some partners in helping us to explore the Europe market. So the PCS is going to be our focus in overseas. In China, we choose to do this business of energy as we have already had meetings in the past and our business unit colleagues saying that for some low-value projects, we just all give them up in China. And I think that the total value will be CNY 1 billion to CNY 2 billion, but the gross margin is too low. We just give up on this market in China. So we are selective here in China for the energy business. Even if next year, there is a slowdown of the business, it is not going to be impacting our overall situation because we have the technical know-how. We had a small volume of this business, but still our technology know-how is pretty good, and we could leverage our existing technologies to get some high-quality order. For digital energy segment, this is a very important transition that we are making. And there is another very important strategy, which is zero carbon solution and zero carbon energy solution. At the current stage, we are working with some governments in trying to set up those example zones and in the truck parks or factories, et cetera. And these are some of the measures in the digital energy area. Thank you.