8 January 2024 | 9:25PM CST

Best Precision (300580.SZ)

A competitive supplier of planetary roller screws for

humanoid robots; initiate at Buy
Research | Equity
Jacqueline Du
+86(21)2401-8948 |
[email protected]
Goldman Sachs (China) Securities
We initiate Best Precision at Buy as the company is on track to becoming one Company Limited

of the very few competitive China-based suppliers of planetary roller screws Zhou Li
+86(21)2401-8648 |
(PRS) for humanoid robots. We forecast Best revenue/EPS to grow at 22%/22% [email protected]
Goldman Sachs (China) Securities
CAGRs in 2023-25E and 16%/18% in 2025E-2030E driven by stable auto parts Company Limited

business growth (ICEs and EVs) with 8%/11% revenue contribution from PRS by Hao Chen
+86(21)2401-8812 |
2027E/2030E. PRS is one of the key bottlenecks for humanoid robot mass [email protected]
Goldman Sachs (China) Securities
production, given limited capacity of high-precision grinding machines and high Company Limited

costs due to previously niche applications. Currently the market is dominated by Zhihan Ye
+86(21)2411-8029 |
overseas players, but we are seeing accelerating R&D efforts from Chinese [email protected]
Goldman Sachs (China) Securities
Company Limited
companies driving domestic substitution. We expect Best to secure 15% global
market share of PRS used in high-spec humanoid robots from 2025E onward,
leveraging its precision manufacturing expertise gathered from the existing
mechanical parts business for the auto industry and its first-mover advantage in
equipment procurement since three years ago. We value Best at Rmb35.5 using a
2027E P/E of 28x discounted back to 2024E, implying 27% upside vs. our China
Industrial Tech coverage average of 15%. Hence, we initiate the stock at Buy.

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For its main business, turbocharger parts, Best has consistently recorded higher
EBIT margin/ROE vs. domestic peers over the years, due to: (1) cost advantage
thanks to accumulation of key technologies and manufacturing know-how for
different turbocharger parts; and (2) stable customer relationships with leading
turbocharger makers. That said, we model a 2023E-27E turbocharger parts revenue
CAGR of only 9%. For the fast-growing EV parts, we expect a 43% revenue CAGR
revenue and a doubling of revenue contribution from 15% to 30% in 2023E-27E.
However, we believe the EV parts business will be margin-dilutive, given fiercer
competition and cost pressure in the EV supply chain (vs. the ICE supply chain).

Key risks: (1) slower transmission components development; (2) slower EV parts
capacity ramp-up; (3) slower turbocharger penetration growth; and (4) lower margins
due to competition or pricing pressure.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Goldman Sachs Best Precision (300580.SZ)

Table of Contents
Thesis in key charts 3

A competitive planetary roller screw supplier for high-spec humanoid robots 8

EV parts: 43% revenue CAGR over 23E-27E but likely with margin drag 17

Turbocharger parts: Steady growth business 18

Financials 20

Valuation 23

Key investment risks 26

Investment thesis, Price Target and risks 27

Disclosure Appendix 29

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Thesis in key charts

We initiate Best Precision at Buy as we believe the company is on the right track
to becoming one of the very few competitive China-based suppliers of planetary
roller screws (PRS) for humanoid robots. PRS is one of the key bottlenecks for
humanoid robot mass production, given: (1) limited capacity of high-precision grinding
machines and (2) high costs due to previously niche applications (with only ~US$300mn
global market size in 2023E). We estimate PRS account for 31% of the BOM (bill of
materials) costs of high-spec humanoid robots as of 2023E. Currently the market is
dominated by overseas (especially European) players such as Rollvis, GSA, and Ewellix
(acquired by Schaeffler). That said, we believe mass production of humanoid robots
could bring down unit costs in the future. We forecast a 15% price reduction p.a. for
roller screws in 2023-35E as we are seeing accelerating R&D efforts from Chinese
companies (e.g., Best, Hengli Hydraulic, and Sanhua) driving potential domestic
substitution in the near future. We forecast Best Precision’s revenue/EPS to grow at
22%/22% CAGRs in 2023-25E and 16%/18% in 2025E-2030E on the back of stable auto
parts business growth (incl. ICEs and EVs) with 8%/11% revenue contribution from PRS
by 2027E/2030E.

n We expect Best to secure a 5% global market share of PRS used in high-spec

humanoid robots in 2024E and 15% from 2025E onward, driving an8% revenue
contribution by 2027E. PRS is a core component in the linear actuators of high-spec
humanoid robots, as compared with other transmission components (e.g., ball
screw, trapezoidal screw, and linkage), PRS can withstand much heavier loads and
shocks with higher reliability and a longer lifespan. The competitive advantage of
Best lies in its: (1) precision manufacturing expertise gathered from the existing
mechanical parts business for the auto industry; and (2) first-mover advantage in
equipment procurement that started three years ago. That said, we believe it will be

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key to watch quality consistency if Best enters into the volume production stage as
the product manufacturing process is highly technical. If the PRS are not consistent
in terms of precision, the screw with the highest precision will bear all the pressure,
resulting in instability of the humanoid robot’s linear motion. Leveraging similar
technological know-how and production equipment in-hand for PRS, Best could also
potentially make inroads into the machine tool industry by supplying ball screws and
linear guides, driving 5% revenue contribution by 2027E, in our view.
n For its main business, turbocharger parts, Best has consistently recorded higher
EBIT margin/ROE vs. domestic peers over the years, and we attribute this superior
financial performance to: (1) cost advantage thanks to accumulation of key
technologies and manufacturing know-how for different turbocharger parts; and (2)
stable customer relationships with leading turbocharger makers, with ~70% of total
revenue coming from the top 5 customers in the past decade. With that being said,
we model a 2023E-27E turbocharger parts revenue CAGR of only 9%, with revenue
contribution gradually declining to 51% by 2027E vs. 75% in 2023E. For
fast-growing EV parts, we expect a 43% revenue CAGR revenue and a doubling
of revenue contribution from 15% to 30% in 2023E-27E. However, we believe the

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EV parts business will be margin-dilutive, given fiercer competition and cost

pressure in the EV supply chain (vs. the ICE supply chain).

Founded in 1997 and headquartered in Wuxi, Jiangsu Province, Best mainly produces
turbocharger parts used in ICEs and PHEVs and die-casting/precision parts used in EVs.
The company kicked off the R&D of linear transmission components, including roller
screws and linear guides, three years ago with a focus on machine tool applications and
began to develop PRS used in the linear actuators of humanoid robots since mid-2023.
As of Nov 2023, the company had just finished developing an internal prototype of PRS
and is working on customized samples based on customers’ requirements after initial
interactions with several domestic and overseas robot OEMs. In the long term, Best
also hopes to produce PRS used in specialized equipment (e.g., for new energy
applications, semiconductors, and batteries).

We adopt a long-term valuation approach for Best given the potential benefits we expect
it to gain from entering into the supply chain of high-spec humanoid robots, which we
forecast to post a 70% global TAM CAGR in 2023E-35E. We value Best using a 2027E
P/E of 28x discounted back to 2024E with a cost of equity of 9.5%, Accordingly, our
12-month target price is Rmb35.5, implying 27% upside vs. our China Industrial Tech
coverage average of 15%. Hence, we initiate the stock at Buy. Key downside risks: (1)
slower-than-expected transmission components development; (2) slower EV parts
capacity ramp-up; (3) slower turbocharger penetration growth; and (4)
lower-than-expected margins due to competition or pricing pressure.

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Exhibit 1: We expect transmission components (incl. PRS for Exhibit 2: ...supported by more grinding equipment in place vs.
humanoid robots) to drive 13% incremental revenue by 2027E peers

Source: Goldman Sachs Global Investment Research As of Nov 2023

Source: Company data, Goldman Sachs Global Investment Research

Exhibit 3: Best has established long-term relationships with Exhibit 4: We believe EV parts will be the key driver together with
leading global turbocharger makers, which occupy 70%+ of global mild growth for the turbocharger parts segment
market share

2131d4eaf4cb4d50b1d51c8af07b64b4
Source: Company data Source: Company data, Goldman Sachs Global Investment Research

Exhibit 5: All in, we expect a 20% revenue CAGR in 2023E-27E, Exhibit 6: We forecast a stable margin profile going forward,
mainly driven by transmission components (incl. PRS) and EV parts expecting margin dilution from EV parts to be offset by the
high-margin transmission components business

Source: Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research

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Exhibit 7: Founded in 1997, Best specializes in high-precision auto components and is actively developing its transmission components
business

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Note: Data as of 2023E unless otherwise specified; “Key products” are not exhaustive.

Source: Company data, Goldman Sachs Global Investment Research

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Exhibit 8: We expect Best to post 22%/22% CAGRs in 2023-25E and 16%/18% in 2025E-2030E for revenue/net income, respectively, primarily
driven by transmission component TAM expansion and then modest share gain of traditional business

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Source: Company data, Goldman Sachs Global Investment Research

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Exhibit 9: Our valuation scenario analysis suggests the most favorable risk-reward for Sanhua, followed by Best Precision, and we believe
Moon’s valuations look stretched
2027E SOTP valuation cross-check (by robot business and core business) under different scenarios and discounted back to 2024E

Note: Priced as of Jan 5, 2024. The base case implied valuations are slightly different from our actual 12-month target prices, which are based on discounted P/E.

Source: Goldman Sachs Global Investment Research

A competitive planetary roller screw supplier for high-spec humanoid

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robots

We believe Best is on the right track to becoming one of the very few competitive
China-based suppliers of planetary roller screws (PRS) for humanoid robots. PRS is
one of the key bottlenecks for humanoid robot mass production at the current stage,
given: (1) limited capacity of high-precision grinding machines and (2) high costs due to
previously niche applications (with only ~US$300mn global market size in 2023E). We
estimate PRS accounted for 31% of the BOM (bill of materials) costs of high-spec
humanoid robots in 2023E. In China, currently the market is dominated by overseas
(especially European) players such as Rollvis, GSA, and Ewellix (acquired by Schaeffler).
That said, we believe mass production of humanoid robots could bring down unit costs
in the future. We estimate a 15% price reduction p.a. for PRS in 2023-35E as we are
seeing accelerating R&D efforts from Chinese companies (e.g., Best, Sanhua and Hengli
Hydraulics) driving potential domestic substitution in the near future.

We expect Best to secure 5% global market share of PRS used in high-spec humanoid

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robots in 2024E and 15% from 2025E onward, driving an 8% revenue contribution by
2027E. After three years of R&D, Best developed ball screws and linear guide
prototypes by Aug 2023 (currently undergoing customer verification) and an internal
prototype of PRS by Nov 2023 with comparable specifications and yet lower costs vs.
overseas competitors such as Schaeffler. Best currently has 40~50 people focusing on
the R&D of PRS, including staff from its existing machine tool and precision
manufacturing teams, new hires from the PRS industry, and external experts from
research institutes. Leveraging similar technological know-how and production
equipment for PRS, Best can also potentially make inroads into the machine tool
industry by supplying ball screws and linear guides, driving 5% incremental revenue by
2027E, in our view.

Best’s competitive advantage lies in its: (1) precision manufacturing experience gathered
from mechanical parts for autos; and (2) first-mover advantage in equipment
procurement. Best’s Phase 1 factory (target annual output of Rmb500mn) has
completed factory infrastructure construction with most equipment in place (such as
high-precision grinding machines) and will enter into production after the commissioning
process in 1H24. The Phase 2 factory (target annual output of Rmb1bn) does not yet
have production equipment in place. Per management, it takes 1.5~2 years from order
placement until the equipment arrives and starts operation, given inelastic capacity from
equipment suppliers (95% of equipment comes from overseas such as Japan and
Europe), export restrictions, and the onsite testing and installation process. That said,
we believe it will be key to watch quality consistency if Best enters into the volume
production stage as the product manufacturing process is highly technical. If the PRS
are not consistent in precision, the screw with the highest precision will bear all the
pressure, resulting in instability of the humanoid robot’s linear motion.

We now expect global humanoid robot TAM to reach US$1.5bn/12bn/38bn by

2025E/2030E/2035E, under our base case assumptions of 20/256/1,378k units of

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shipment in 2025E/2030E/2035E (75%-389% higher than previous forecasts), which is
attributed to faster end-to-end AI development, steeper cost curve, growing
commitment from the supply chain and the boom of start-ups. We believe hardware
technologies are mostly ready while end-to-end AI (completely different from
rule-based control) could potential enable much faster humanoid robot iteration
as seen from the improvement of manipulation and interaction capabilities of various
products in 2023 (Tesla Optimus Gen 2 for example). Meanwhile, cost reductions
have also trended much faster, driving better application economics, leading us to
now expect the factory application timeline will be one year faster than we
previously forecast (2024E-27E vs. 2025E-28E) and consumer applications 2-4
years faster (2028E-2031E vs. 2030E-2035E) — not to mention the potential policy
support in the pipeline.

We believe a potential 2028 market exit bear case looks unlikely now, but we assume a
delay of volume production for two years vs. our base case due to technology
bottlenecks or manufacturing constraints. With that said, we need to monitor the
industry development for a longer time to evaluate the capability of humanoid robots to
handle generalized multi-task applications. Put another way, it is still unclear whether

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a general-purpose AI robot is technologically viable. Only in a blue-sky scenario

would we expect humanoid robots to become the next commonly adopted “must-have”
electronic device (after EVs and smartphones), not only for manufacturing and
hazardous/dangerous operations but also for broader consumer and household
applications (such as elderly care). We believe the best investment opportunities at
this stage still reside in supply chain component stocks.

Exhibit 10: We raise our 2024E-2035E global humanoid robot shipment forecasts
Global humanoid robot shipment forecasts (new vs. prior)

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We assume a 5-year life cycle in our installed base forecasts.

Source: Goldman Sachs Global Investment Research

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Planetary roller screw (PRS), is a precision actuator that can convert rotary motion to
linear motion and is suitable for low-friction, high-precision, heavy-load, and long-life
applications such as aerospace, defense, and machine tools. PRS is a key component in
the linear actuators of high-spec humanoid robots. We expect every high-spec humanoid
robot to adopt eight PRS for use in its linear actuators. Compared with other
transmission components (e.g., ball screw, trapezoidal screw, and linkage), PRS can
withstand much heavier loads and shock with higher reliability and a longer lifespan. For
humanoid robot applications, PRS would need to reach a C2-C3 accuracy rate, similar to
most CNC machine tool applications, according to our channel checks.

Currently PRS is rather expensive, mainly due to its niche applications with only
~US$300mn global market size in 2023E. In China, currently the market is dominated by
overseas (especially European) players such as Rollvis, GSA, and Ewellix (acquired by
Schaeffler). That said, we believe mass production of humanoid robots could bring down
unit costs in the future. We estimate a 15% price reduction p.a. for PRS in 2023-35E, as
we are seeing accelerating R&D efforts from Chinese companies (e.g., Best, Hengli
Hydraulics, and Sanhua) driving potential domestic substitution in the near future. As a
result, though PRS will remain significant in terms of robot costs, we expect its
contribution to the BOM (bill of materials) of high-spec humanoid robots will decline
marginally from 31% in 2023E to 26% in 2030E and 22% in 2035E.

Exhibit 11: PRS is a key component in the linear actuators of high-spec humanoid robots

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Source: Company data

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Exhibit 12: We expect every high-spec humanoid robot to adopt eight PRS in their linear actuators
Illustration of high-spec robot components breakdown (PRS highlighted in green)

TS means trapezoidal screws; PRS means precision roller screws.

Source: Goldman Sachs Global Investment Research

Exhibit 13: PRS has higher performance in terms of load/speed/precision than other types of linear transmission products
Linear motion transmission components comp sheet

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Source: Heason, Company data, Goldman Sachs Global Investment Research

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Exhibit 14: PRS for humanoid robots require an accuracy grade of C2-C3, similar to most CNC machine tools

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Source: JIS, Hiwin, Data compiled by Goldman Sachs Global Investment Research

Exhibit 15: Roller screw has been a niche market with ~US$300mn Exhibit 16: In China, the market is currently dominated by overseas
global TAM as of 2023E (especially European) players

Source: Persistence Market Research Note: NTEM stands for Nanjing Technical Equipment Manufacturing Co.

Source: Company data, Goldman Sachs Global Investment Research

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Exhibit 17: Accelerating R&D efforts are driving industry-wide domestic substitution

Source: Company data, Goldman Sachs Global Investment Research

Exhibit 18: As a result, we are seeing decent opportunities for domestic companies to enter into the supply chain

Source: Goldman Sachs Global Investment Research

Exhibit 19: We estimate -16%/-15% price reductions p.a. for high-spec humanoid robots and PRS in 2023-35E.

PRS: Planetary roller screw 2131d4eaf4cb4d50b1d51c8af07b64b4

Source: Goldman Sachs Global Investment Research

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Exhibit 20: Best’s traditional business share similarity with ball/roller screws in terms of the manufacturing process

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Source: Company data, Goldman Sachs Global Investment Research

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Exhibit 21: Best has developed: 1) ball screw and linear guide prototypes by Aug 2023 (currently undergoing customer verification); and 2)
internal prototype of roller screw in Nov 2023 after three years of R&D...

Source: Company data

Exhibit 22: ...supported by more grinding equipment in place vs. Exhibit 23: ...as well as an ambitious capacity plan...
peers...

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As of Nov 2023 Source: Company data, Goldman Sachs Global Investment Research
Source: Company data, Goldman Sachs Global Investment Research

Exhibit 24: As a result, we expect Best to secure 5% global market share in 2024E and 15% onwards
Market share forecast for GS coverage companies

Source: Goldman Sachs Global Investment Research

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Exhibit 25: We expect transmission components to drive 13% revenue contribution for Best by 2027E, contributed by roller screws (8%) for
high-spec humanoid robots and ball screws/linear guides for machine tools (5%)

Source: Goldman Sachs Global Investment Research

EV parts: 43% revenue CAGR over 23E-27E but likely with margin drag

We expect a 43% revenue CAGR for EV parts revenue and a doubling of the
revenue contribution from 15% to 30% in 2023E-27E. Our fast-growing revenue

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assumptions are on a small base (currently only 1.7% global market share in 2023E) and
make reference to the company’s capacity plan. Since 2018, Best has been investing in
EV parts to counter the slowdown of the ICE industry. As of now, Best mainly supplies
on-board charger components, DC converter components, compressor pressure
recovery & rectifiers, and compressor motor housings. With acquisitions of two EV parts
companies in 2019 and 2020, respectively, Best quickly got into the supply chain of
multiple EV OEMs and tier-1 suppliers. For example, by acquiring Suzhou Hebeisi, a
casting metal spare parts maker, Best is able to cross-sell its own products to Hebeisi’s
existing customers, including Tesla. On the other hand, the company has been
expanding production capacity and expects to reach an additional annual output of
Rmb347mn (based on company estimates) by 2025E, on top of its existing Phase I EV
parts capacity.

That said, we believe the EV parts business will be margin-dilutive at a 30% average in
2025E-2030E vs. the firmwide average of 34%, given fiercer competition and cost
pressure in the EV industry vs. the ICE supply chain where Best produces turbocharger
parts.

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Exhibit 26: We expect a 43% revenue CAGR for EV parts revenue in Exhibit 27: That said, we believe the EV parts business will be
23E-27E, accounting for 30% of total revenue in 2027E margin-dilutive given fiercer competition and cost pressure in the
EV supply chain (vs. ICE)

Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research

Exhibit 28: With acqusitions of two EV parts companies, Best quickly entered into the supply chain of multiple EV OEMs/tier-1 suppliers

Source: Company data

Turbocharger parts: Steady growth business

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We forecast mild segment revenue growth for Best, as: (1) we expect HEV demand
growth will not be enough to offset the ICE structural decline, and (2) there is limited
room for turbocharger penetration growth (at 50% in 2023E). All in, we model a 9%
2023E-27E turbocharger parts revenue CAGR, with the revenue contribution gradually
declining to 51% by 2027E vs. 75% in 2023E.

Best generates the bulk of its revenue (67% of total sales in 2013-2022) from
manufacturing and selling high-precision parts to global and local turbocharger makers
(e.g., Garrett Motion, Cummins, and Borg-Warner). We estimate that Best has 8.4%
global market share in the turbocharger parts industry in 2022, competing with domestic
players such as Lihu, Feilong and Kehua Holdings, and overseas players including
Turbotech Precision (UK), AIKOKU Alpha (Japan), STEWART Manufacturing (US), and
CIMOS d.d. Automotive (Slovenia). Best has a wider product offering vs. domestic
peers, covering wheels, intermediate housings, precision shaft parts, compressor
housings, air sealing plates, and gear shafts.

Turbocharger is a complementary component in the ICE system, essentially acting as an

air compressor to improve combustion efficiency and leading to energy saving and

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reduced exhaust emissions. The turbocharger market is highly consolidated with the
same top 5 players taking up 78% global market share (2021) and 87% China market
share (2020).

Best has consistently recorded a higher EBIT margin and ROE vs. domestic peers over
the years, and we attribute the superior financial performance to: (1) cost advantage
thanks to accumulation of key technologies and manufacturing know-how for different
turbocharger parts; and (2) stable customer relationships with leading turbocharger
makers, with ~70% of total revenue coming from the top 5 customers in the past
decade.

Exhibit 29: While we forecast increasing penetration of Exhibit 30: ...we forecast only mild segment revenue growth going
turbochargers... forward as we believe the strong growth of HEV is not enough to
offset the structural decline of the ICE industry

Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research

Exhibit 31: Best has established long-term relationships with Exhibit 32: Revenue contribution from these top turbocharger
leading global turbocharger makers including Borgwarner, Garett, makers have accounted for the majority of Best’s total revenue in
Mitsubushi Heavy, IHI, and Cummins the past

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Source: Huaon.com Source: Company data

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Exhibit 33: Best has a better margin profile vs. other turbocharger parts supply chain players

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Source: Company data

Financials

n Income statement: We forecast revenue to grow at a 20% CAGR in 2023E-27E,

mainly driven by EV parts sales and transmission components including roller
screws for high-spec humanoid robots and ball screws and linear guides for machine
tools. We believe firmware GPM will remain relatively stable given that the dilution

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effect from increasing contribution from EV sales can be mostly offset by the
high-margin transmission components business. SG&A spending has been relative
stable over the past few years, and we expect a similar trend going forward given
the stable business relationship with customers. All in, we forecast a 21% net
income CAGR in 2023E-27E.

Exhibit 34: Best income statement

(Rmb mn)

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Source: Company data, Goldman Sachs Global Investment Research

n Balance sheet: Cash conversion days have been stable since 2016, and we believe
working capital will grow at a pace largely in line with revenue/cost expansion. PP&E
plays a key role in Best’s assets given the company mainly engages in the
manufacturing of various precision components. As the company expands
production capacity for EV parts and transmission components (e.g., roller screws,
ball screws, and linear guides), we forecast continued expansion of gross PP&E
going forward.

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Exhibit 35: Best balance sheet

(Rmb mn)

Source: Company data, Goldman Sachs Global Investment Research

n Cash flow statement: Best has been recording decent operating cash flows,
supported by solid business relationships with global customers. That said, free cash
flows have been slightly negative over the years as the company kept investing in
capacity expansion to support future growth. In terms of financing, we believe
Best’s current cash position is enough to support its business plan in the next two

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years, after raising Rmb620mn via convertible bonds in 2020.

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Exhibit 36: Best cash flow statement

(Rmb mn)

Source: Company data, Goldman Sachs Global Investment Research

Valuation

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We adopt a long-term valuation approach for Best given the potential benefits we
believe it could reap by entering into the supply chain of high-spec humanoid robots,
which we forecast will post a 71% global shipment CAGR in 2023E-35E. Specifically, we
value Best using a 2027E P/E of 28x discounted back to 2024E with a cost of equity of
9.5% (in line with our electrification sub-sector average), Accordingly, our 12-month
target price is Rmb35.5, implying 27% upside vs. our China Industrial Tech coverage
average of 15%. Hence, we initiate the shares at Buy.

We conducted a valuation scenario analysis on humanoid robot related companies under

our coverage, suggesting relatively favorable risk-reward for Best. Specifically, under a
SOTP valuation framework, we value Best’s core business (turbochargers and EV parts)
at 20X 2027E P/E (in line with the A-share EV components sub-sector trading multiple),
with the humanoid robot business being a key swing factor. Under our base-case
assumptions (100X 2027E P/E for humanoid business), this SOTP valuation implies 26%
upside (largely in line with the 27% upside potential implied by our 12-month target
price of Rmb35.5), while our bluesky/bull/bear cases imply 315%/122%/-30% share
price upside.

M&A framework: We assign a rank of 3 for Best, indicating a low probability of it being
acquired. The key factor in our M&A rank is the management team’s low willingness to
sell the company and given the relatively concentrated shareholding structure (with the
management team collectively holding 45% of total shares as 3Q22).

Exhibit 37: Best currently trades at 33x 12-m forward P/E Exhibit 38: Best currently trades at 20x 12-m forward EV/EBITDA

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Source: Wind, Company data, Goldman Sachs Global Investment Research Source: Wind, Company data, Goldman Sachs Global Investment Research

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Goldman Sachs Best Precision (300580.SZ)

Exhibit 39: Our valuation scenario analysis suggests the most favorable risk-reward for Sanhua, followed by Best Precision, and we believe
Moon’s valuations look stretched
2027E SOTP valuation cross-check (by robot business and core business) under different scenarios and discounted back to 2024E

Note: Priced as of Jan 5, 2024. The base case implied valuations are slightly different from our actual 12-month target prices, which are based on discounted P/E.

Source: Goldman Sachs Global Investment Research

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Goldman Sachs Best Precision (300580.SZ)

Exhibit 40: Best comp sheet

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*denotes stock is on the Conviction List. Priced as of Jan 5, 2024 market close

Source: Wind, Bloomberg, Goldman Sachs Global Investment Research

Key investment risks

n Slower transmission components development: Currently we model revenue

contribution from transmission components starting from 2024E and reaching 13%
of total revenue in 2027E, contributed by roller screws for high-spec humanoid
robots (8%) and ball screws and linear guides for machine tools (5%). That said, we
believe watching quality consistency will be key if Best enters into the volume
production stage as the product manufacturing process is highly technical. If the

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Goldman Sachs Best Precision (300580.SZ)

PRS it produces are not consistent in terms of precision, the screw with the highest
precision will bear all the pressure, resulting in instability of the humanoid robot’s
linear motion. Going forward, if the business development is slower than our
expectation (in terms of product R&D, customer acquisition and verification, and
volume production), our revenue forecasts will be negatively impacted.
n Slower EV parts capacity ramp-up: The company has been expanding production
capacity and expects to reach an additional annual output of Rmb347mn (based on
company estimates) by 2025E, on top of its existing Phase I EV parts capacity. We
now forecast capacity ramp-up to support 43% revenue growth p.a. for the EV parts
business in 2023E-27E. Going forward, if the new capacity ramp-up pace is later
than our expectation, our revenue forecasts for the EV parts business will be
negatively affected.
n Slower turbocharger penetration growth: Currently we model penetration at
~75% by 2027E (vs. ~55% by 2023E) driven by auto OEMs’ needs to increase
combustion efficiency, leading to 9% revenue growth for Best p.a. Given the already
high turbocharger penetration, it is key to monitor any further room for penetration
growth. Looking ahead, if industry penetration growth is slower than expected, our
segment revenue forecasts for turbocharger parts will be negatively affected.
n Lower-than-expected margins due to competition or pricing pressure: Going
forward, if competition intensifies (likely due to increasing new entrants) or there is
higher-than-expected pricing pressure from customers (driven by their need to save
raw material costs) from one or more of Best’s main business areas, such as
turbochargers, EV parts, and transmission components, our margin forecasts will be
negatively impacted.

Investment thesis, Price Target and risks

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Investment thesis

We initiate Best Precision at Buy as we believe the company is on the right track to
become a competitive supplier of planetary roller screws (PRS) for humanoid robots, on
the back of stable auto parts business growth (incl. ICEs and EVs). We forecast Best
Precision’s revenue/EPS to grow at a 22%/22% CAGR in 2023-25E and 16%/18% in
2025E-2030E. We adopt a long-term valuation approach for Best given the potential
benefits we expect it to reap from entering into the supply chain of high-spec humanoid
robots, which we forecast will post an 80% global shipment CAGR in 2024E-35E. We
expect Best to secure 5% global market share of PRS used in high-spec humanoid
robots in 2024E and 15% from 2025E onward, driving 8% incremental revenue by
2027E, on the back of: (1) precision manufacturing experience gathered from fixtures
products supplying to machine tools; and (2) first-mover advantage in equipment
procurement. That said, we believe it will be key to watch quality consistency if Best
enters into the volume production stage as the product manufacturing process is highly
technical. If the PRS are not consistent in terms of precision, the screw with the highest
precision will bear all the pressure, resulting in instability of the humanoid robot’s linear

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Goldman Sachs Best Precision (300580.SZ)

motion. We are Buy rated.

Price Target and risks

Our 12-month target price of Rmb35.5 is based on 2027E P/E of 28x discounted back to
2024E with a CoE of 9.5%. Key risks: (1) slower transmission components
development; (2) slower EV parts capacity ramp-up; (3) slower turbocharger penetration
growth; and (4) lower-than-expected margins due to competition or pricing pressure.

Sanhua - Price target risks and methodology

Our 12m target price for Sanhua Intelligent Controls is Rmb39.0, based on a 30X 2027E
P/E discounted back to 2024E on a COE of 9.5%. Key downside risks: 1) More
intensified competition in the EV thermal management segment; 2)
Worse-than-expected Tesla EV sales; 3) Increasing home appliance demand/home
appliance cycle downturn.

Moon’s Electric - Price target, risks and methodology

Our 12-month target price of Rmb49 is based on a 2027E P/E of 40x, discounted back to
2024E at a CoE of 9.5%. Key upside risks: humanoid robot development
faster-than-expected; market share within humanoid robot OEMs being higher than our
expectations; stronger-than-expected share gain progress in Motors & Drives.

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Goldman Sachs Best Precision (300580.SZ)

Disclosure Appendix
Reg AC
I, Jacqueline Du, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or
companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report.

GS Factor Profile
The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may
vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B,
price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.

M&A Rank
Across our global coverage, we examine stocks using an M&A framework, considering both qualitative factors and quantitative factors (which may vary
across sectors and regions) to incorporate the potential that certain companies could be acquired. We then assign a M&A rank as a means of scoring
companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2
representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
factor into our price target, and may or may not be discussed in research.

Quantum
Quantum is Goldman Sachs’ proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

Disclosures
Other disclosures
Please note: Third-party brands used in this report are the property of their respective owners and are used here for informational purposes only. The
use of such brands should not be viewed as an endorsement, affiliation or sponsorship by or for Goldman Sachs or any of its products/services.
The rating(s) for Best is/are relative to the other companies in its/their coverage universe: AVIC Jonhon, Anhui Ronds, Best, CRRC Corp. (A),
CRRC Corp. (H), Centre Testing Intl Group, Cubic Sensor & Instrument, Estun Automation Co., Faratronic, HCFA, Haitian International Holdings, Han’s

2131d4eaf4cb4d50b1d51c8af07b64b4
Laser Technology, HangKe Technology, Hongfa Technology, Hymson, Kehua Data Co., Lead Intelligent, Leader Harmonious Drive Systems Co., Luster
LightTech Co., Nantong Jianghai Capacitor Co., OPT Machine Vision Tech Co., Pony Testing, Raytron Technology, Sanhua Intelligent Controls, Shanghai
Baosight Software, Shanghai Friendess Electronic Tech, Shenzhen Envicool Technology, Shenzhen Inovance Technology Co., Shenzhen Kstar Science &
Tech, Shuanghuan Driveline, Techtronic Industries, United Winners, Wuhan Raycus Fiber Laser Tech, Yiheda Automation, Zhejiang Supcon Technology
Co., Zhuzhou CRRC Times Electric Co. (A), Zhuzhou CRRC Times Electric Co. (H)

Company-specific regulatory disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, “Goldman Sachs”) and companies covered
by Goldman Sachs Global Investment Research and referred to in this research.
There are no company-specific disclosures for: Best (Rmb27.28)

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell
Global 48% 36% 16% 62% 56% 44%

As of October 1, 2023, Goldman Sachs Global Investment Research had investment ratings on 2,960 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage universe and related definitions’ below. The Investment
Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided
investment banking services within the previous twelve months.

Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or

8 January 2024 29
Goldman Sachs Best Precision (300580.SZ)

co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed
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2131d4eaf4cb4d50b1d51c8af07b64b4
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Goldman Sachs Best Precision (300580.SZ)

Ratings, coverage universe and related definitions

Buy (B), Neutral (N), Sell (S) Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or
Sell on an Investment List is determined by a stock’s total return potential relative to its coverage universe. Any stock not assigned as a Buy or a Sell on
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https://www.fiadocumentation.org/fia/regulatory-disclosures_1/fia-uniform-futures-and-options-on-futures-risk-disclosures-booklet-pdf-version-2018.
Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation
will be supplied upon request.
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