China's largest provider of intralogistics solutions for lithium-ion battery makers hopes to capitalize on the recent boom for robotic stocks

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Key Takeaways:

• Zhongding Intelligent has applied to list in Hong Kong, reporting its revenue grew by nearly 5% last year
• The onsite logistics company's revenue is heavily concentrated on few new energy clients, mostly in the lithium-ion battery sector

Ever since its introduction by Nvidia CEO Jensen Huang to describe AI-powered devices acting autonomously in the physical world, "Physical AI" has been taking on a life of its own. That was especially evident in the onsite logistics realm last year when Figure AI wowed observers with the launch of its Figure 03 robot, which can process 45,000 packages over 30 hours in a logistics facility. Since then, stocks blending logistics operations and robotics have become a new investor darling in their own right.

Riding that wave, Chinese intelligent logistics equipment and system integration provider Zhongding Intelligent (Wuxi) Technology Co. Ltd. submitted its application for a Hong Kong IPO earlier this month.

Founded in 2009, the company initially collaborated with a new energy firm to provide stacker cranes. It was acquired in 2016 by Shanghai-listed Noblelift Co. (603611.SH), which currently holds nearly all of Zhongding's shares with a 99.6% stake.

Logistics spending in China is massive, worth 19.5 trillion yuan ($2.86 trillion) last year, forming a crucial pillar of the economy. The industry is broadly divided into external and onsite logistics, the latter also known as intralogistics. While external logistics primarily covers various transportation modes and supply chains between separate companies and facilities, intralogistics focuses on production lines and inventory systems within individual factory and warehouse walls. Driven by technological advancements, the broader logistics sector is shifting toward high-end, intelligent development to boost efficiency and reduce human error.

Compared to external logistics, intelligent intralogistics has higher technological barriers, covering multiple stages of operations, such as storage, conveying, and sorting, within factories and logistics parks. The global intelligent intralogistics market grew from 379.8 billion yuan in 2021 to 528.6 billion yuan last year, averaging 8.6% annual growth. Fueled by the increasing use of intelligent intralogistics solutions worldwide, the market is expected to keep growing at a strong clip to potentially surpass 850 billion yuan by 2030.

Profit, revenue continue to grow

Intelligent intralogistics solutions require the integration of various software and hardware components to function. Key hardware includes automated storage and retrieval systems (AS/RS), automated conveyors, sorting systems and robots. Accompanying software primarily consists of warehouse control systems (WCS) and warehouse management systems (WMS).

Automated storage and retrieval systems significantly boost storage density by making better use of vertical space, drastically reducing land costs. Stacker cranes are core equipment within these systems, while robots are used in stages such as material handling, picking, and conveying to reduce the need for manual labor. China's status as the world's largest manufacturing powerhouse, accounting for nearly 40% of total global industrial output, means its demand for such equipment is huge.

The country's intelligent intralogistics solutions industry was worth 111 billion yuan last year, and is expected to grow at an average annual rate of 11.1% to 187.7 billion by 2030, according to third-party market research in Zhongdian Intelligent's prospectus.

But China's intralogistics landscape is highly fragmented, with the top five players accounting for just 9% of the market. Zhongding Intelligent ranks fourth, but its market share stands at just 1.6%. The industry leader's share isn't much higher at just 2.1%, showing the race remains tight among even the leaders. That high fragmentation leaves Zhongding Intelligent well-positioned to emerge as a consolidator if it can successfully boost its market share both organically and through acquisitions.

Zhongding Intelligent's revenue is growing, though not at lightning speed. The figure rose from 1.8 billion yuan in 2024 to 1.88 billion yuan last year, up 6.1% and 4.7%, respectively, in those two years. Over that period, its net profit rose 13.4% to 88.63 million yuan in 2024, and another 9.8% last year to 97.37 million yuan. Its gross margin climbed to 15.1% last year, marking a 2 percentage point improvement from the previous year.

High customer concentration

A breakdown by industry reveals the vast majority of Zhongding's revenue – about 1.68 billion yuan last year – comes from the new energy sector, which accounted for 93.8% of its smart intralogistics solutions revenue. This segment generated a gross profit of 263 million yuan, equal to a gross margin of 15.7%. The company further specifies that its "new-energy operations" encompass warehousing and intelligent production solutions tailored for lithium-ion batteries. Since lithium-ion batteries are sensitive to environmental conditions and can pose safety risks, such as combustion if mishandled, they demand extraordinarily rigorous safety standards for warehousing and transport.

Zhongding Intelligent ranks first among providers of intelligent intralogistics solutions in China's new energy lithium-ion battery sector. The country's lithium battery shipments reached 1,100 GWh last year — accounting for over half of the global total. What's more, they are expected to more than double to 2,600 GWh by 2030, providing fertile ground for Zhongding to feed off.

Zhongding's client concentration from the lithium-ion battery sector is quite high and getting higher, growing from 77.1% of its revenue in 2023 to 92.6% last year. Moreover, raw materials constitute a massive portion of the company's expenses, representing between 72% and 75% over the same three-year period. Its reliance on raw materials like steel plates means the company is highly exposed to related price fluctuations. That means rising commodity prices that can't be passed on to clients could cause the company's overall gross margin to suffer.

Overall, Zhongding Intelligent operates in a highly attractive industry with big growth potential and has been consistently profitable. As a reference, logistics equipment peer Geekplus (2590.HK) currently trades at a very high forward P/E ratio of more than 100 times. But Geekplus boasts gross margins as high as 37%, significantly above Zhongding Intelligent's. That means Zhongding is unlikely to try to price its IPO at such a lofty valuation. Nevertheless, a high but more realistic forward valuation of 30 times could make the stock compelling, given the big growth potential in China and current strong appetite for robotic stocks. International expansion could also hold out big promise, since the company's global revenue currently sits at just 5.7% of its total.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.