China Automation: Deep Dive into HOLI
Following up on my last post, I wanted to do a deep-dive into $HOLI as I feel it is a very interesting investment opportunity often overlooked due to its smaller market cap and "industrial" focus. I provide a brief overview below with details in the attached PDF.
My bullish thesis on HOLI is what I consider to be a “triple play” supported by macro, policy, and company specific fundamental drivers. I will outline them below and dive deeper in the PDF attachment:
1. Macro: automation adoption is growing driven by a shrinking work force and rising wages
2. Policy: the Chinese government is ambitious about the future of automation opting for less but smarter manufacturing
3. Fundamental: HOLI is a market leader in several categories, taking share from competitors, and hitting new growth “sweet spots” that target larger TAM opportunities
Hollysys is a China-based provider of automation and process control solutions used to improve operating safety, reliability, and efficiency across a wide range of industry verticals including power generation, manufacturing, pharmaceuticals, and rail transportation. Founded in 1993, HOLI has approximately 3,800 employees, serving over 5,000 customers on more than 20,000 projects. It went public in 2007 on the NASDAQ.
HOLI sells its solutions mainly as integrated contracts consisting of hardware, software, and services tailored to a customer’s specifications (only bundled, not sold separately). Integrated contracts are typically won through a procurement bidding process and usually take ~1 year to fulfill. In addition, HOLI generates revenue through product sales (spare parts and component products for maintenance/replacement after the initial contract is over) and services (maintenance and training post warranty expiration). HOLI manufactures key systems hardware in-house at its Beijing and Hangzhou facilities.
Management team is very hands-on as the founder, Chairman, and CEO all have over 20 years of experience in the automation business. Founder Changli Wang and Chairman Jianfeng He both have PhDs in Automation. CFO Harriet Qu was previously the Financial Controller before becoming CFO and has been in the automation industry for over >20 years. Founder Dr. Wang owns ~12% of outstanding shares, making him the largest single shareholder.
Although only a ~$1B market cap company, several notable long onlys have large positions including M&G Investment, Schroder, and William Blair. Share ownership is concentrated on long onlys with hedge funds owning just 5% of shares outstanding based on the latest available filings from FactSet.
My bullish thesis on HOLI is what I consider to be a “triple play” supported by macro, policy, and company specific fundamental drivers. I will outline them below and dive deeper in the PDF attachment:
1. Macro: automation adoption is growing driven by a shrinking work force and rising wages
2. Policy: the Chinese government is ambitious about the future of automation opting for less but smarter manufacturing
3. Fundamental: HOLI is a market leader in several categories, taking share from competitors, and hitting new growth “sweet spots” that target larger TAM opportunities
Hollysys is a China-based provider of automation and process control solutions used to improve operating safety, reliability, and efficiency across a wide range of industry verticals including power generation, manufacturing, pharmaceuticals, and rail transportation. Founded in 1993, HOLI has approximately 3,800 employees, serving over 5,000 customers on more than 20,000 projects. It went public in 2007 on the NASDAQ.
HOLI sells its solutions mainly as integrated contracts consisting of hardware, software, and services tailored to a customer’s specifications (only bundled, not sold separately). Integrated contracts are typically won through a procurement bidding process and usually take ~1 year to fulfill. In addition, HOLI generates revenue through product sales (spare parts and component products for maintenance/replacement after the initial contract is over) and services (maintenance and training post warranty expiration). HOLI manufactures key systems hardware in-house at its Beijing and Hangzhou facilities.
Management team is very hands-on as the founder, Chairman, and CEO all have over 20 years of experience in the automation business. Founder Changli Wang and Chairman Jianfeng He both have PhDs in Automation. CFO Harriet Qu was previously the Financial Controller before becoming CFO and has been in the automation industry for over >20 years. Founder Dr. Wang owns ~12% of outstanding shares, making him the largest single shareholder.
Although only a ~$1B market cap company, several notable long onlys have large positions including M&G Investment, Schroder, and William Blair. Share ownership is concentrated on long onlys with hedge funds owning just 5% of shares outstanding based on the latest available filings from FactSet.
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