Company Reports

Hengli Hydraulic is best known as the world’s largest excavator hydraulic-cylinder supplier, with more than 60% market share in China and approximately 30% globally. However, its growth increasingly depends on expanding beyond excavator cylinders and supplying more hydraulic content per machine.

We are transferring coverage of Hengli Hydraulic, China’s leading domestic supplier of hydraulic components and systems for construction equipment.

Hengli's revenue grew 28% year on year in the fourth quarter of 2025 and 33% in the first quarter of 2026, while net profit declined by 10% and rose just 6% over the same periods, mainly due to foreign-exchange loss. Excluding currency impact, adjusted operating margin remained largely stable.

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 23% of revenue in 2025. Excavator demand is highly cyclical, and Hengli’s excavator hydraulic cylinder revenue fell by 37% from 2021 to 2024 before returning to growth in 2025. As booming mining activities fuels strong excavator demand, we expect excavator cylinder sales to accelerate in 2026.

Humanoid robots took center stage in China's 2026 Spring Festival Gala, with their eye-catching performances drawing widespread media attention.

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 23% of revenue in 2024. Excavator demand is highly cyclical, and Hengli’s excavator hydraulic cylinder revenue fell by 37% from 2021 to 2024 due to the industry downturn. As major excavator manufacturers in China have maintained positive monthly shipment growth since April 2024, we believe excavator demand has bottomed out and anticipate a rebound in excavator cylinder sales in 2025.

Hengli Hydraulic's third-quarter revenue rose 25% year on year, accelerating from 7% in the first half, while net profit increased by 31%.

Hengli Hydraulic's first-half revenue rose 7% year on year, with gross margin holding steady at 42%.

Hengli Hydraulic 's revenue fell 7% year on year in the fourth quarter of 2024, followed by a 3% year-on-year rebound in the first quarter of 2025.

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 23% of revenue in 2024. Excavator demand is highly cyclical, and Hengli’s excavator hydraulic cylinder revenue fell by 37% from 2021 to 2024 due to the industry downturn. As major excavator manufacturers in China have maintained positive monthly shipment growth since April 2024, we believe excavator demand has bottomed out and anticipate a rebound in excavator cylinder sales in 2025.

Hengli Hydraulic’s share price has surged nearly 70% from its January low, driven by optimism surrounding its screw-type linear actuators, a core component for humanoid robots. While we recognize Hengli's potential to benefit as a promising supplier to the growing humanoid robot market, we believe the incremental revenue contribution from this sector will remain immaterial over the next five years. Therefore, we maintain our fair value estimate of CNY 58 and view the shares as overvalued.

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 27% of revenue in 2023. Excavator demand is highly cyclical, and Hengli’s excavator hydraulic cylinder revenue fell by 54% from 2011 to 2015 due to the industry downturn. Since the industry entered another downcycle in mid-2021, we expect Hengli’s excavator hydraulic cylinder revenue to trend lower and bottom in 2024.

Narrow-moat Hengli Hydraulic's third-quarter revenue growth met our expectations, but the margin contraction was somewhat disappointing. Excluding fair value gains, operating profit was flat despite an 11% year-on-year revenue increase, as a larger headcount led to higher operating expenses. Hengli's headcount increased by 15% year-to-September, likely due to its geographic expansion in Mexico and research and development needs for its ball screw product expansion. We keep our revenue forecasts but reduce our 2024-28 operating profit forecasts by 5% to account for the lower operating margins. Consequently, we cut our fair value estimate by 3% to CNY 58 and consider the shares fairly valued.

Narrow-moat Hengli Hydraulic’s second-quarter results reinforce our view that product diversification will drive growth in the long term. Despite flat sales of the excavator hydraulic cylinder this quarter, sales of the excavator-related pump, valve, and motor grew 66%, and nonexcavator-related sales increased by 26% year on year. Gross profit jumped 43% year on year on a 22% revenue rise and 6.3 percentage points gross margin expansion. As such, we increase our net income forecast by 10% to CNY 2.7 billion for 2024 and by 6%-7% for 2025-28. We raise our fair value estimate by 8% to CNY 59.60. Hengli is slightly undervalued.

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 27% of revenue in 2023. Excavator demand is highly cyclical, and Hengli’s excavator hydraulic cylinder revenue fell by 54% from 2011 to 2015 due to the industry downturn. Since the industry entered another downcycle in mid-2021, we expect Hengli’s excavator hydraulic cylinder revenue to trend lower and bottom in 2024.

Narrow-moat Hengli Hydraulic's 2023 results indicate underlying strength in its excavator-related business. Sales in hydraulic cylinder and hydraulic pump and valve segments were 2% and 4% above our estimates, respectively, which we attribute to the resilience in excavator-related sales. We think Hengli still face challenges from falling excavator shipment, as reflected in its 21% year-on-year decline in excavator-related revenue in the first quarter of 2024, but we are slightly more optimistic now. After raising our revenue assumption by 5% and gross margin assumption by 106 basis points, we now forecast CNY 2.5 billion in net income for 2024, up 7% from our previous estimate. We have also increased our net income estimates by 2%-9% for 2025-27. We raise our fair value estimate by 10% to CNY 55. The shares closed at an 8% discount to our fair value estimate on April 25, but we would prefer a higher margin of safety before buying.

Hengli Hydraulic is best known as the largest hydraulic cylinder supplier for excavators, commanding over 50% market share in China and about 30% globally. Excavator hydraulic cylinders accounted for 27% of revenue in 2023. Excavator demand is highly cyclical, and Hengli’s excavator hydraulic cylinder revenue fell by 54% from 2011 to 2015 due to the industry downturn. Since the industry entered another downcycle in mid-2021, we expect Hengli’s excavator hydraulic cylinder revenue to trend lower and bottom in 2025.

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

We initiate coverage of Hengli Hydraulic, the largest Chinese hydraulic component supplier, with a narrow moat rating. We have identified switching costs and intangible assets as the company's moat sources. Our fair value estimate is CNY 50, 11% below its share price as of Nov. 29. We consider the shares fairly valued given our High Morningstar Uncertainty Rating.