Jiangsu Hengli Hydraulic: A Strategic Play on Cyclical Recovery and Diversified Growth

Jiangsu Hengli Hydraulic Co., Ltd. (601100.SS), the world's largest supplier of hydraulic cylinders for excavators, is navigating a pivotal inflection point in its business cycle. With a commanding 50% market share in China and 30% globally, the company has long been a bellwether for the construction machinery sector. However, recent financial and strategic developments suggest that Hengli is not merely riding the waves of cyclical demand but actively reshaping its future through diversification, cost discipline, and technological innovation.

Strong H1 2025 Performance and Margin Expansion

Hengli's first-half 2025 results underscore its operational resilience. Revenue for Q2 2025 reached 2.72 billion CNY, a 13.7% year-on-quarter (YoQ) increase, while net income hit 811.52 million CNY. For Q1 2025, revenue grew 2.56% YoY to 2.422 billion CNY, with net income rising 2.61% to 618 million CNY. Crucially, the company's net interest margin after deductions surged to 28% in Q1 2025, up 3.35 percentage points YoY and 5.77 percentage points MoM. This margin expansion, despite modest revenue growth, reflects Hengli's mastery of cost control and production efficiency.

The improvement in margins is not an anomaly but a strategic outcome. Hengli has optimized its supply chain, reduced waste, and leveraged economies of scale in its core excavator cylinder business. These gains are critical as the company transitions from a cyclical-dependent model to one with more sustainable profitability.

Excavator Market Recovery: A Catalyst for Growth

The excavator sector, which accounts for 23% of Hengli's revenue, has historically been volatile. Between 2021 and 2024, excavator hydraulic cylinder revenue fell by 37% due to an industry downturn. However, recent data indicates a turning point. Major Chinese excavator manufacturers have reported positive shipment growth since April 2024, signaling the bottoming out of the cycle. With domestic infrastructure spending and real estate stabilization policies gaining traction, Hengli is poised to benefit from a rebound in excavator demand in 2025.

Hengli's internationalization strategy further insulates it from domestic volatility. The company's Mexican production line is now operational, and its European and American markets contributed 22.1% of total revenue in 2024. This global footprint ensures that even if the Chinese market lags, Hengli can capitalize on growth in North America and Europe, where infrastructure modernization is a priority.

Non-Standard Cylinder Expansion: Diversifying for the Future

While excavator recovery is a near-term tailwind, Hengli's long-term growth hinges on its non-standard cylinder initiatives. These customized hydraulic solutions are gaining traction in sectors like wind power, photovoltaics, and construction machinery. In H1 2024, non-standard cylinder sales grew 21.53% YoY to 0.1389 million units, while non-excavator pump and valve revenue rose 24.3% YoY.

The company's linear drive project—producing precision ball screws, planetary roller screws, and linear guides—is a testament to its forward-looking strategy. These components are critical for electrification and automation trends, aligning Hengli with the global shift toward energy-efficient and smart manufacturing. By 2027, the company projects operating income of 13.4 billion CNY, driven by these high-growth segments.

Investment Rationale: Cyclical and Structural Tailwinds

Hengli's stock offers a compelling case for investors seeking exposure to both cyclical and structural growth. The company's improving net interest margin (now 28% in Q1 2025) suggests robust profitability even in a low-growth environment. Meanwhile, its diversification into non-standard cylinders and international markets reduces reliance on the excavator cycle.

The electrification push further strengthens its case. As renewable energy and automation drive demand for precision hydraulic systems, Hengli's R&D investments in linear drives and IoT-enabled solutions position it as a key supplier for the next industrial revolution.

Conclusion: A Strategic Buy for Long-Term Investors

Jiangsu Hengli Hydraulic is at an inflection point. Its strong H1 2025 performance, margin expansion, and strategic pivot toward non-standard cylinders and international markets create a compelling investment thesis. While the excavator recovery remains a near-term catalyst, the company's long-term potential lies in its ability to adapt to electrification and diversify its revenue streams. For investors with a 3–5 year horizon, Hengli offers a rare combination of cyclical resilience and structural growth.

In a market where many companies are struggling to navigate macroeconomic headwinds, Hengli's disciplined execution and forward-looking strategy make it a standout opportunity. As the company continues to balance its core strengths with innovation, it is well-positioned to deliver consistent returns in an evolving industrial landscape.